Building material prices have leaped 40% since December 2019. The long-expected price reset has not materialized, except for lumber and commodity materials. As the cost to build homes has soared, builders have raised prices to preserve margins. Houses are now more unaffordable than ever for many prospective buyers.
Building product manufacturer capacity crunch fuels building material inflation.
This year’s stronger-than-expected housing activity reignited demand for building materials. A shortage in resale supply and an uptick in builder incentives are propping up new home sales. As a result of the strong demand for new homes, we are seeing some clear signs of capacity limitations within building product manufacturing. With building product companies selling almost everything they can produce in certain categories, few are dropping prices.
We particularly note capacity issues in roofing (partly due to recent storms damaging many roofs) and insulation. Some manufacturers have not been able to satisfy all the demand and have begun allocating products (partially fulfilling orders) in both categories. Manufacturers have added little capacity, and bringing new facilities online is often a multiyear undertaking, so they are raising prices due to the high demand.
As the leaves fall, building product prices rise.
In the first half of 2023, building product companies increased their gross margins thanks to last year’s price hikes. Commentary from many companies confirmed that, outside of commodity products (particularly lumber), prices were sticking at these new elevated levels.
Recent examples of price increases announced over the past two months include:
- Roofing: 5%–8% increases across many manufacturers
- Insulation: 6%–10% increases across most manufacturers
- Gypsum wallboard: Up to 20% increases across manufacturers
The preliminary results from our upcoming Window and Door Industry Survey (releasing on October 31) in partnership with Window + Door magazine also show that manufacturers are mulling price increases in 2024.
As we enter fall, construction costs show no sign of dropping, further inflating an already pricey housing market.