Material Shortage: How Does This Impact Homeowners Insurance?
March 30, 2021
Another unforeseen consequence from the COVID-19 pandemic is the building material shortage. What we are seeing is unlike anything ever before. There are very few historical events that have caused the ENTIRE supply chain to be affected. Of course, there have been past weather events that have affected the supply chains. However, those have typically been limited to state or regional areas. We are seeing the entire nation be affected by the pandemic.
What does that mean if you currently own a home or are looking to buy a home in the near future?
If you have been to the local hardware store in recent months, you may have had some sticker shock on the cost of lumber.
A 2 x 4 x 8’ is hovering around $8.00 each.
A 7/16th sheet of OSB is over $28.00.
Compared to a year prior, these two lumber items are up over 180% depending on your geographic area. According to the National Association of Home Builders recently published article from February 22, 2021, the record high lumber prices have caused the average new build single-family home to increase by $24,386. This is just the average home increased cost estimate. The larger the home, the bigger the gap becomes.
Contributing Factors to the Price Hikes
Due to COVID-19 shutdowns, there were a record number of home remodel projects being completed by homeowners in 2020.
Mills and lumber dealers were not prepared for the increased demand for 2020 and were already behind.
Mortgage rates remained low and continued to drop, which made for favorable mortgage terms.
The lumber mills and suppliers were affected by COVID-19 shutdowns and employee related illness and quarantine situations. This further delayed the production of construction materials, which continued the trend of having a low supply and high demand.
How does the material shortage affect your homeowners insurance plans?
Have you reviewed your limits of insurance as it specifically relates to the dwelling or buildings on the property you own? It is a good idea to have an understanding of the going rate of a new home build in your geographic location. This allows for an accurate comparison to how you are insuring your home. Certainly, the expertise of an insurance agent comes in handy here to help determine your replacement costs.
Most agents have access to software that calculates the cost of building a new home. It also updates the material costs every 30 days to keep up with what is happening in the marketplace. Due to material shortage, it is likely that a majority of homeowners insurance policy holders are now underinsured to no fault of their own.
How about a review of your homeowners insurance policy?
Not all homeowners insurance policies are created equal. Some include specific endorsements that automatically increase coverage on the dwelling for times like these. They can include an additional dwelling limit of 10% or 25% or 50% depending on the policy type and/or endorsement. On the flip side of that, there may not be an endorsement on the policy that helps with these market spikes. As a result, you may be left with the dwelling limit that you see on your declarations pages.
Now is a great time to review the limits of insurance on your home. After all, it is one of the largest financial investments you own. This may be a temporary pricing issue, or it could be here for the long term. We want to be confident every home we insure has the proper limits of insurance. If you lost your home in a fire or tornado, we want you to have the proper funding to rebuild it without having to dip into your savings or take out a larger mortgage to pay for the loss.
We are glad you found us, and we genuinely care about your financial well-being. Our agents will enjoy getting to know you and we will do our best to make the insurance process easy! If you are ready for us to take a look at things for you, the first step is filling out this form and hitting submit!