Notifications about significant price increases for lots, lumber, siding, trusses, appliances and pretty much everything that goes into building a house have become regular occurrences for local home builders.
“Every day, I get messages like this, sometimes several a day,” Jean DeWitz said after reading an email about an unexpected 15 percent price increase in garage doors, the fourth one this year. DeWitz is co-owner of Rochester’s DeWitz Home Builders.
Supply chain issues and high demand driven by the COVID pandemic have added thousands of dollars to the cost of a new house, along with extending construction times by months due to delays in getting supplies.
Those daily price spikes in recent months mean building a house in 2021 costs $25,000 to $40,000 more than it did before the pandemic. DeWitz said she bid $275,000 for a house with a finished basement before the price increases. That same house just sold for $270,000 without a finished basement.
However, higher prices don’t mean that local builders aren’t busy
Bigelow Homes has about 80 houses under construction in Rochester, Kasson, Byron, Wabasha and other communities.
Bigelow President Mike Paradise said some people planning pre-ordered homes have been scared off by the news of price increases. However, due to the hot buyer’s real estate market and low interest rates, model homes built by Bigelow are selling quickly.
“They sell right away, as soon as we get them on the market,” said Paradise.
Higher building costs, coupled with extremely low inventory of local houses is making ownership a lot tougher for the first-time home buyer.
"My concern is we will lose an entire generation of homeowners. The number one wealth builder that people have is their homes. If they don't have that, what's gonna happen?,” said DeWitz.”Our whole mission has always been to get people into their first home.. When my dad started the company, he worried about us kids being able to buy a home, then he worried about his grandchildren. Now I worry about my kids and my grandchildren. And if it doesn't stop, we're gonna lose a whole generation.”
Her family-owned business is well-known for getting people into their first homes. That means working with people who earn 80 percent of the state’s median income. DeWitz says that segment includes teachers, firefighters, police officers and other local professionals
“That’s our workforce. … those are people that really need housing. They're still making good money, but it is getting harder for them,” she said.
Paradise added that another factor in today’s complicated market is that the area still hasn’t completely recovered from the devastating housing crash of 2006 to 2008.
“We’re not building enough ownership units. We’re building almost 1,000 a year. Rochester needs to build five to 700 more ownership units a year,” he said. “If those people don't have somewhere to go, they'll leave the community. If we don't address that issue ... if we can't house them somehow, we'll lose our experienced workforce.”
The housing crash pushed many local developers, contractors and subcontractors out of the business, and Paradise said new players are not stepping up to fill those roles.
“Our construction industry isn’t growing as Rochester grows … The crash made the industry not very attractive..., I've always said we've got to bring the sexy back to construction,” he added.
While there are signs that price escalations for materials like dimensional lumber might be slowing down and possibly decreasing, builders don’t expect a reduction in housing costs in the near future.
However, that doesn’t mean that waiting to build a new home is a strategy that will pay off.
“If my kids were talking about building, I'd say don't wait a year and think you're gonna save all kinds of money. I don’t think that will happen,” said Paradise.