Des Moines Real Estate Blog

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  • Adam Van Lin, Realtor
    Burnett Realty
    10200 Hickman Rd. #100
    Clive, Iowa 50325
    Cell 515.344.1068
    Fax 515.331.3401
    Licensed in Iowa

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Cost of New Home Construction

Posted by adamvanlin on July 18, 2011

As part of the Producer Price Index(PPI), the Bureau of Labor Statistics puts out industry specific information.  Today we will be looking at the PPI for residential construction.  This “sub-index” follows the price of the raw materials that go into the building a new home.  Why is this important?  Well if the cost of building a new home increases, builders will have to increase the price of the home, and home prices rise.  Also, if the cost of building a home rises, builders are less likely to build if the market can’t support the price.  Eventually this leads to less supply of new homes and in turn higher prices.  Lets take a look at the graph…

Click for larger image

The PPI for residential construction for the month of June came it at 204.5, a slight increase from May’s number of 204.4.  We usually don’t see a major difference in the month to month numbers.  The important comparison is the year over year number.  Compared to the June 2010 reading of 191.6, last months reading was 6.7% higher.  This means in general, the cost to build a new home is about 7% higher than it was at this time last year (see graph).  As you can see, we are getting towards the upper range and builders will have to continue to scale back their efforts unless prices changes direction significantly (see previous post on prices).  I was talking to a couple builders this weekend and they confirmed this was the case.  Instead of selling a home before it was even built like in years past, people are wanting to see the finished product first, which is slowing down production even more.


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