That’s why home construction will be even more expensive this year

That's why house building will be even more expensive this year – Image: © Watchara #298701901 – stock.adobe.com

Those who had hoped for a drop in real estate prices in 2022 were bitterly disappointed. High demand faces low interest rates.
In addition, there has been another price driver for some time now. We're talking about building materials, which are in short supply and therefore more expensive.

Higher construction costs in double digits

A recent survey shows how much builders are affected by high construction costs.

Three out of four test persons who had only recently concluded a construction financing via the provider emphasized being strongly or very strongly affected by the higher construction costs.

Most of the interviewees explained that their construction project had increased by ten to 20 percent due to rising prices. One in four had to dig even deeper into their pockets.

Supply shortages a common reason

In particular, price increases for wood cost the house builders dearly. Less noticeable was the impending shortage of glass or insulating material. One in two also pointed out that delays to individual phases of construction occurred due to supply shortages.
In addition, just under half of all respondents emphasized that projects planned in advance, such as a solar system, a fireplace, a carport or a garage, are put on hold for the time being for cost reasons.

Higher energy prices and wage costs

This year, that trend is coming to a head. The price spiral is spinning even higher. In addition, prices in the construction industry itself are steadily rising. In addition, rising energy prices will lead to higher costs for concrete and steel. Furthermore, the increase in statutory minimum wage causes higher labor costs.

However, it is equally important for builders not to leave out interest on construction costs.

Instead, so far still relatively favorable real estate loans will become more expensive in the course of the year. The recent spike in construction rates triggered by the Corona uncertainties will most likely continue to increase.

Rising interest rates are likely

At the beginning of 2022, Interhyp asked ten lending institutions independently of each other. All institutions assumed that real estate interest rates will rise this year. Currently, the interest rate is about one percent.
For 2022, it is predicted that construction interest rates will increase significantly by several tenths of a percentage point. Interest rates are currently expected to rise by 0.25 to 0.5 percent.

Advantages of loans with a long fixed-interest period

If you want to take advantage of the current favorable construction interest rates, you should opt for a loan with a long fixed-interest period for up to 20 years. This period would protect borrowers from having to pay higher interest rates.
In view of possible delays, another deadline plays an important role for builders – the provision interest-free period. During this period, banks will hold the agreed upon loan amount for drawdown without charging further interest.

If the banks agree to the relevant regulations, this period could extend to up to 24 months. But still, the biggest challenge for home builders and property owners is generally raising enough equity for the home building project.