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Rising Commodities Lift all Homes


Home prices tend to rise with commodity prices over the long term. Currently, the Producer Price Index for construction is up 39 percent over the past five years, and prices for commodities like oil, copper, steel and cement are sky-high. Sooner or later the increasing costs of these raw materials will push home prices higher.

As the supreme commodity, every home is full of materials like steel, wood, and copper wiring. Presently, an oversupply of homes may be keeping prices low, but home prices are rooted in hard costs and will eventually adjust to reflect the price of production.


In many cases today, homes are being sold for less than their replacement cost. One good example of this was a property that a local home seller told me where their insurance company did an analysis based upon a very detailed custom home which came back that their replacement cost was roughly 25% more than what they take for their house in a sale, and it was almost 40% higher than tax appraisal. The issues obviously is that it seems that those homes that were custom built versus spec houses which probably had a tighter budget, are more apt have more cost with a therefore higher replacement value than they could sell the property for in the open market.


Posted Monday Oct 27

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