A change in surveying techniques combined with lower land prices and profit-taking in 2009 to the point where building materials, lot preparation, and building permits accounted for 58.9% of the typical single-family home price, the highest percentage in 15 years, the National Association of Home Builders' (NAHB) latest Construction Cost Survey indicates.
At the same time, the relative share of total costs occupied by various building materials has remained fairly consistent over the past decade, with two notable exceptions: the percentage of home costs devoted to framing, trusses, and windows has dropped, while the share for roof shingles and siding have increased. Changes in raw materials prices are the likely culprits for both sets of changes, the association said.
The NAHB's Paul Emrath, who wrote the summary, said NAHB based its conclusions on survey responses from 54 builders nationwide. The average home they constructed in 2009 covered 2,716 square feet, was on a lot that measured just over half an acre, and sold for $222,511.
Of that total price, 58.9% went to building materials, lot preparation, and permit fees. That's up sharply from the 48.1% share in NAHB's 2007 survey and was higher than any survey since at least 1995. But NAHB noted that the results aren't totally comparable because builders surveyed in pre-2009 polls weren't solicited randomly but rather were recommended by metropolitan area home builder associations. Thus, 2009's numbers include more non-metropolitan builders. In addition, the home construction slump since 2007 means the 2009 numbers include a higher share of custom-built homes and a reduced share of spec housing.
Even with those caveats, the latest numbers show how the recession has changed what goes into a home's final selling price. For instance, in 2009, lot costs accounted for 20.3% of the total sales price. That compares with 24.5% in 2007 and 26.0% in 2004. Financing costs dropped to 1.7% in 2009 from 2.4% in 2007, overhead and general expenses fell to 5.4% from 7.0%, sales commissions accounted for 3.4% of sales price from 2007's 4.3%, and the share devoted to profit slipped to 8.9% in 2009 from 11.2% in 2007.
When examining how construction costs break down among building materials, NAHB preferred to view changes over the past decade. In that context, it took note that framing and trusses, which accounted for 20.2% of all construction costs in 1998, rose to 21.3% of the total in 2004 and yet took up only 15.6% of the total bill in 2009. Likewise, the share for windows dropped from 3.8% in 1998 to 3.2% in 2004 to 2.8% in 2009. "Some of the cost-chare changes coincide with known movements in the prices of key building materials," NAHB said, citing Random Lengths reports that showed a spike in mill prices in the middle of the last decade followed by a decline.
On the other hand, siding prices accounted for 4.3% of total construction costs in 1998, dropped to 3.6% in 2004, and then jumped to 5.8% of the total in 2009, while roof shingles went from 2.6% in 1998 to 2.2% in 2004 to 3.8% in 2009.
"The rising share of costs for roof shingles may be due largely to changes in asphalt prices," NAHB wrote. Meanwhile, "the rising cost-share for siding may be the result of a shift toward more expensive materials. The survey indicates that, since 2002, brick has steadily increased its market share and replaced vinyl as the siding material most commonly used on single-family detached homes."