This is an issue that many people do not understand about the dwelling replacement cost on homeowners insurance increasing every year. This happens even as the real estate market is going down. Here are some reason why construction costs for homes are growing.
Contact us to learn more about the dwelling replacement costs on Virginia home insurance.
- The United States Department of Labor Statistics reports that the cost of materials used to build standard homes has risen almost 2% in the past year. Since the materials used in high value custom built homes are often transported from outside the United States and/or design centers such as New York, Chicago and San Francisco, increased cost of those components is even higher.
- The residential real estate market is improving and showing a positive impact for home builders and renovators. The United States Department of Housing and Urban Development reports building permits for privately owned homes increased by almost 30% in 2012. Harvard’s Joint Center for Housing Studies expects that double-digit growth in home improvement spending will continue well into 2014 as homeowners see the real estate market continuing to improve.
- After hurricanes: Ike; Wilma; Rita and Katrina – material and labor costs rose an average of 5.8%. Considering the extent of damage done by Super-Storm Sandy we can expect increases in excess of that average.
- The homes with the most severe damage from Super-Storm Sandy have not even been granted building permits yet because changes to the building code will most likely be made. Although compliance with code is not part of Coverage A, the additional coverage for rebuilding to code will still have an impact on Insurance To Value. Therefore, we need to plan for what we anticipate will happen when rebuilding commences.
- The price of lumber rose 16.3% in 2012 (primarily in the 3rd and 4th quarter) while sheetrock prices went up 23.7%. Economic forecasters, including the Association of General Contractors, predict other building materials will also increase once rebuilding begins.
- Due to the depressed residential construction environment, contractors went out of business and laborers left to seek other employment. All our sources tell us this will be a problem once the rebuilding of homes damaged by Super-Storm Sandy begins. There will not only be a shortage of laborers, but also a huge demand for quality craftsmen because so many multi-million dollar homes were damaged. After four years of minimal increases in labor rates, a large jump in the second half of 2013 can almost be guaranteed.