When it comes to building a custom home these days, there is one thing on most people’s minds: price increases. It’s no secret that product availability, fuel prices, and inflation have all contributed to unprecedented rises in construction industry pricing. The most common question we get from our clients is if they can expect costs to come back down any time soon. The answer to that question, however, requires a deeper dive into some of the contributing factors
Supply Chain Disruptions
One of the greatest effects of the pandemic was the disruption of supply chains around the world. In addition to causing longer shipping times, this disruption has led to a decrease in the supply amidst an increase in demand for many products, which in turn has led to rising prices for almost everything.
Although many of these disruptions have been resolved, here in Canada we are still experiencing residue supply chain challenges. According to Statistics Canada, 59% of businesses in the construction industry expect difficulty acquiring products or supplies from within Canada and 60.6% expect difficulty acquiring products or supplies from abroad for the next six months or more.
The effects of the supply chain disruption will most likely continue into the short term, presenting unique challenges to the construction industry and ultimately those planning to build a custom home.
Canadians are also experiencing higher gas prices across the country. Unfortunately, the rise in gas prices is not just felt at the pump, but it has trickled down into the cost of most products, including construction supplies and materials. Increased gas prices have led to increased transportation costs, which in turn have increased the cost of goods and services.
Here in Alberta, we have seen some reprieve in the cost of oil and as a result, this has brought down the price of gas slightly. According to GasBuddy.com, Calgary’s fuel prices have come down from an average of $1.90 per litre in June to about $1.50 per litre this month. If this trend continues, we could see a decrease in the cost of goods and services as well.
Inflation & Interest Rates
If there is one thing Canadians are becoming more aware of it is inflation and the impact it has had on our economy. According to Statistics Canada, in April 2022, Canadian consumer prices rose 6.8% year over year, a slight increase from March (+6.7%), the largest increase since January 1991 (+6.9%).
Unfortunately, the construction industry is not immune to inflation. For example, the cost of construction for residential buildings in the first quarter of 2022 has increased by 25% compared to the same time last year!
The BCPI measures change over time in contractors’ prices to construct a range of new residential buildings.
You may have heard a lot of talk lately about interest rates, which will need to be increased to combat inflation. This, in turn, may pose other challenges. As Shouldice Wealth explains, “Central banks have put themselves in a difficult spot. They must raise interest rates enough to quell inflation, but not too much as to cause a recession.” There is certainly a fine balance between curbing inflation and raising interest rates, which causes quite a bit of volatility in the marketplace in general and the construction industry specifically.
Planning for your Custom Home
There are many factors contributing to increased construction costs, but the biggest question is what this means for you and your plans to build a custom home. Should you build now? Or should you wait? The answers to these questions are unique to every person’s situation, but there are a few general notes on timing that are helpful to keep in mind.
Historically, real estate values increase over time. So, despite the higher than “normal” costs in the residential building industry, if you are planning to live in your new home for five or more years, it could still make sense to build now. This is because over time, the value of your property will most likely trend upwards, narrowing the gap between what you would spend if you built your home now and what you would spend if you waited. On the other hand, if you are planning to build a home and then sell it immediately, there is a higher risk that you will not see a return on your investment.
Another factor to keep in mind is the current real estate market. We do expect to see a correction in the larger metropolitan areas, like Vancouver and Toronto, as housing prices have become unsustainably high in these regions over the last few years. Here in Calgary, though, our housing market is much more stable. Although we have seen some increases in housing prices, which may dip slightly, our housing market is in a much better position to weather the rising interest rates and is not expected to be as significantly impacted.
So, can we expect costs to come back down anytime soon? Unfortunately, we don’t think so. However, that doesn’t necessarily mean that you need to wait to build your new home. Now could still be the perfect time to get started with building the custom home of your dreams.
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Braemyn Homes is Calgary’s custom home building and renovation specialist. Whether you are looking to build your forever home or make room for a growing family, our clients can expect the highest standard of excellence delivered with exceptional craftsmanship and superb customer care. Call us at (403) 606-2923 or fill out our contact form to see how we can help you create the home of your dreams.