If you got a price from a contractor to remodel your home in 2015 or 2016 and asked for an updated proposal in 2018 you might have had a minor heart attack! The cost of wood and lumber has now reached all time highs. The average increase in lumber costs for a new home is $9,000 higher than January of 2017 and the average home prices in the U.S. has also reached all time highs. The reason for the increase is due to several factors including wildfires in Canada (the worst wildfires on record for the Pacific Coast), lumber shortages, trade disputes along with the bustling economy. We rely heavily on Canada for our lumber – approximately 1/3 of our dimensional framing and 100% of our red and white cedar shingles come from Canada. As per usual the United States does not produce enough as we consume when it comes to most building materials.
If you combine the nearly 35% increase in lumber from last year with the 30% increase in labor in 2017, well, that just stinks for everyone involved! Homeowners are paying more and contractors have to charge more to account for these increases. The labor increase appears to be here to stay for the long-term due to the severe labor shortage in the construction industry. As for the lumber – who knows – it has been volatile for years and I predict ups and downs for years to come. We have found that many contractors are unaware of just how significant these increases have climbed and as a result their profits have plummeted compared to last year. There is also a lot of research to suggest that most contractors make little to no profit on their work already as they often confuse mark-up with profit. These same contractors rarely cost our their jobs and complete little accounting to find out how successful their year actually was. The reason for this is that most are very good at their trade, but very bad operations managers or accountants. Also, many mistake being busy with making high profit. Unfortunately, but not surprisingly, these are the same company’s that usually do not make it when the economy slides.
California also has the nation’s second-highest cost of living, behind only Hawaii. The business tax climate in California ranks the third-worst in the U.S., ranks highest in gas prices and liability insurance is usually ranked second worst, only behind New York. The simple and painful truth is, especially for us Californians, is to expect annual increases in most, if not all remodeling types. These large annual increases has nothing to do with contractors trying to make higher profit margins and everything to do with contractors just trying to keep up with the increase in costs and most of the time we struggle to keep up.