Rising costs of materials are a double-edged sword for the real estate market. On the one hand, it can lead to increased construction costs, making it more challenging to build new housing and necessitating higher consumer prices. On the other hand, a housing inventory shortage often increases prices for existing homes. 

Therefore, experts at Golden Equity Properties in Montreal, QC, said the net effect of rising materials costs on the real estate market is often dependent upon the specific circumstances within a given housing market. Rising materials costs will significantly impact markets with already high prices and low inventory levels. However, even in these markets, there are usually still some individuals who can find opportunities to buy or sell properties at favourable prices. 

Construction Costs

Golden Equity Properties says the most direct way rising materials cost impacts the real estate market is through increased construction costs. When lumber, concrete, nails, and other necessary materials go up, builders must either find ways to cut corners without compromising safety or quality or raise their asking price for new homes. 

Unfortunately, there are only so many ways to cut corners during construction before quality and safety become a concern. Therefore, when raw material prices go up, there is often a corresponding increase in the price of completed homes being built by developers. This puts upward pressure on home prices and makes it more difficult for potential homeowners to break into the market. 

However, not all builders react to rising costs in the same way. Some builders may eat some of the increased costs to maintain current sales levels and preserve their competitive position within the marketplace. Additionally, some sub-markets within larger metro areas may be affected differently due to local economies and land availability variances. 

The Impact On Home Buyers

The rising cost of construction materials is having an impact on home buyers. The most obvious way that these higher prices affect buyers is in terms of the sticker price of a home. When lumber and other materials cost more, builders pass those costs on to buyers in the form of higher prices for both new construction homes and existing homes being remodelled or renovated.

Golden Equity Properties says in addition to higher prices for completed homes, buyers also see increases in the cost of land and lots. Land prices have been steadily increasing for years, but the recent spike in lumber prices has caused those costs to grow even more. This is especially true in desirable areas with high demand for land but limited supply. As a result, many buyers are being priced out of these areas altogether.

The Impact On Home Builders

While buyers are certainly feeling the pinch of rising construction costs, builders are also struggling. In addition to passing these increased costs on to buyers in the form of higher prices, builders are also facing margin pressures due to competition from other builders who may be willing to accept lower margins to win bids and get business. Additionally, many builders have difficulty finding enough workers to staff their projects due to COVID-related shortages. This combination of factors is putting a lot of pressure on builders and making it difficult for them to turn a profit.

What Happens Next?

It is still too early to definitively say the long-term impact of rising construction costs on the real estate market. However, these higher prices are having an impact on both buyers and builders. Buyers are facing higher prices and limited availability, while builders are struggling to turn a profit. Only time will tell how these trends will play out in the months and years to come.

How Can Investors Profit?

There are a few different ways investors can profit from the rising cost of construction materials. One way is to invest in companies that produce these materials. Lumber, concrete, and other construction materials are all in high demand right now, so investing in companies with these items can be an excellent way to make money.

Another way to profit from rising construction costs. As mentioned above, the price of both new and existing homes is growing due to the increased construction cost. This trend will likely continue, so investing in real estate can be an excellent way to make money.

Finally, Golden Equity Properties says investors can also profit by investing in companies that provide services to the construction industry. For example, construction equipment manufacturers will likely see increased demand as builders look for ways to improve efficiency and cut costs. Additionally, companies that provide financing to builders or help them secure permits and approvals may also be in an excellent position to profit from the rising construction cost.

Conclusion

Rising materials costs can positively and negatively affect the real estate market depending upon specific circumstances within any given housing market. In general, rising construction costs lead to higher prices for new and existing homes due to increased demand from buyers who are either priced out of purchasing a new home or prefer not to enter a bidding war for an existing home. However, not all builders respond to increased raw material prices in the same way, and sub-markets can vary significantly from one another. Therefore, it is essential to consult with a local real estate professional to make sure you have a complete understanding of how changing material costs may affect your ability to buy or sell property in your specific market.