Costs of construction in the current South Florida luxury market
Residential construction is an important industry in Florida with 430,000 residential construction workers employed in the sector, the second largest workforce in the country. Due to historically low mortgage rates, rising work from home rates and pandemic-influenced relocation, demand for new homes is surging. Indeed all across the country clamor for real estate drives increases in home prices, construction materials and labor costs. Let’s look at how these factors affect the residential construction industry in Palm Beach and Martin Counties here in Florida.
In February Dr. Robert Dietz, chief economist and senior vice president for economics and policy for the National Association of Home Builders (NAHB) spoke to the Florida Realtors®' virtual 2021 Florida Real Estate Trends summit where he cited "The limiting factor for builders has been the roller-coaster ride for lumber prices...In talking to builders, rising lumber costs for a newly built home could be pushing prices up $15,000 or more.”
Florida Realtors Chief Economist Dr. Brad O'Connor reported at the Trends summit in February that he observes higher demand for luxury homes in areas away from urban centers and in areas known for their high number of second or vacation homes. He reported 100% sales growth increases in homes priced over $1 million. However, bright as the news is, there are still some shadows on the ability of builders to meet homeowner’s expectations.
According to the National Association of Home Builders, builders continue “to grapple with rising lumber prices and supply chain issues.” NAHB reports demand is outstripping supply for residential construction materials and there are issues “particularly regarding the cost and availability of lumber, appliances, and other building materials.” Material price increases and nationwide shortages of lumber, drywall, plywood are changing construction schedules and affecting building timelines.
Since March 2020, material prices jumped almost 13 percent — the highest such jump in 35 years. Builders are experiencing longer lead times and fractional shipments of materials, all of which are beyond their control. To bring some stability to pricing where they can, some builders are working with their suppliers to obtain lumber price guarantees for a specific timeframe or are pre-ordering lumber. Other builders are including share price increase clauses in contracts.
Pressure on the Palm Beach County market led to a reported median price increase of 18.9 percent year-over-year. Martin County had a 30.4 percent year-over-year increase. In both counties housing inventory has decreased. There is a heightened call for new construction homes. According to Karen Johnson, President of Broward, Palm Beaches & St. Lucie Realtors® “New construction is a great investment option for homebuyers as South Florida continues to grow. Prospective homebuyers also get the benefit of being part of the design process and being able to build the dream home that they have envisioned.”
The implications of supply side constraints mean you must ground your construction budget in reality. It’s important to understand that material price increases and market demand affect the finished cost of your home. And it’s also fair to realize you must revisit numbers frequently in the process of construction.
What this comes down to for you as a custom home buyer is a need to act sooner rather than later to identify the ideal location for your new luxury South Florida home. To get started, you can meet with our PB Real Estate division representatives in person, on site, or virtually. Once we understand your vision, we proceed to the design / build phase with our highly qualified General Contractors supervising every step of the process.
Here at PB Builders, we are experienced professionals and have been building for more than 30 years. As a result, we have weathered many trends in the market and comprehend how to make building your home a superior experience. We believe in transparency and clear communication. Not only do we build homes, we build relationships that endure as long as the homes we build.