Metro Detroit

Market Update: Construction Costs vs Profit

September 08, 2022

The crew over at John Burns Consulting released a chart today, showing how construction costs have grown faster than net price increases over 4 of the past 6 quarters.

The assumption for many has been that the speed at which new home prices have soared over the past 18 months has had more to do with greed than costs, but this chart shows otherwise.

Construction costs – materials + labor – have soared since the pandemic began, but very few of our builders have seen their margins increase; most, if anything, have seen decreases in their profits.

For that reason, many have had to switch from a price/sqft model to a cost-plus model, where the customer pays the invoice, plus 20%. The prices could go up (or down) from the original estimate, but it protects the builder from having to eat increases…

Jeff Bortnick & Lou Bitove, owners of The New Home Experts®, have nearly 40 years of combined experience in real estate, much of that with builders like Pulte & Toll Brothers.  They also provide market research for area builders, developers, and national firms.  If you’re considering a new home, remember: the builders’ rep represents the builder, not you.  Work with the only local agents in Metro Detroit to specialize in new homes, and save money in the process – ask us how!