Building a home is a dream that many people have. Unfortunately, because of certain circumstances, building materials are in short supply. Supply chain disruptions, labor shortages, and a particularly devastating wildfire season have resulted in a tremendous increase in the cost of lumber. So how is all of this affecting new home construction loans? Below, we’ve discussed the matter in detail.
Why is Lumber So Expensive Right Now?
Costs for lumber hit an all-time high in May of 2021. While prices are now about 22% lower than they were last year, they’re still three times higher than they were before the pandemic. But why has all of this happened? What’s suddenly made wood so expensive?
It turns out, there are a number of factors at play. Here are some of the reasons why lumber is so expensive in 2022:
- Sawmill output is behind. When the pandemic hit, mortgage rates dropped and there was a surge in the number of people interested in buying a home. Simply put, there are more buyers than there are available homes. The sawmills can’t keep up with the demand. This is further exacerbated by a shortage in labor.
- There are major supply chain disruptions. Right now, we’re in the middle of a global supply chain disruption. A number of factors are responsible here including changes in consumer behavior, labor shortages, and logistics issues, but mostly the pandemic is to blame.
- There are tariffs on Canadian lumber imports. In 2021, the U.S. government doubled the tariffs on Canadian lumber, making it even more difficult to purchase.
- Wildfires were rampant last season. Wildfires in the West caused a major loss of available lumber during a time when it was already short in supply.
How are New Home Construction Loans Being Affected?
If you’re wondering if it’s still possible to obtain a new home construction loan, the answer is yes. But you should know that building a home is tough right now.
Because of the lumber shortages and the pandemic, everything is taking longer in new construction. This includes obtaining permits, getting supplies, and the construction itself. Both materials and manpower are in short supply.
Furthermore, you may end up having to borrow more than you expected. Right now, it costs about $18,600 more to build a home than it did before the pandemic. To qualify for a higher loan amount, you’ll need good credit and a low debt-to-income ratio.
This is not to say that you have to give up on your dream of building a home. But you may have to exercise some patience. Also, finding the right lender who can work with you to problem-solve and walk you through the process will be key to your success.
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