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Growth and demand imbalance for building materials | Real estate insurance coverage law blog



There is a large imbalance between supply and demand for building materials right now and policyholders trying to repair or compensate for any damage to their property are forced into a holding pattern because of it. The American Property Casualty Insurance Association (APCIA) urges policyholders living in high-risk areas to prepare for seasonal disasters. Mitigating potential losses by taking appropriate action now will save a lot of trouble and waiting in the future.

The pandemic caused a significant strain on the materials on the construction market. There is an outstanding shortage of materials and the cost of them continues to rise. This is especially true for timber.

Property owners can help alleviate the pressure on costs by taking the necessary steps now to mitigate a future future. This includes checking your policy to ensure that it covers replacement cost recovery, which pays for building materials of the same type and quality, without deducting depreciation. It's also wise to check if your policy includes optional higher cost of living (ALE) limits. If a longer time frame is needed to complete repairs or replacement of your property due to lack of materials, you will want more ALE to cover hotel and food costs for a longer period of time.

In USA Real Estate Insurance Market Struggles to Balance Supply and Demand APCIA reported:

After a record year of disasters 2020, 2021

began with one of the largest winter freeze losses in U.S. history in February, with Texas experiencing its largest non-hurricane weather loss event. The incident led to hundreds of thousands of claims for residential and commercial real estate in the region and is estimated to have caused insured losses of 10- $ 20 billion dollars. By comparison, disaster losses during the first quarter averaged $ 4.6 billion over the past 10 years, up $ 7.6 billion in 2017. 1 However, ongoing effects from COVID-19 have become the largest history 2021 which continue to weigh heavily in the real estate insurance market. COVID-19 led to a sharp decline in the production of important building materials in early 2020, just as consumer demand shifted from services to goods.

Demand for timber crashed in the Great Recession when house construction screamed to a halt, so the wood industry expected a similar slowdown in Covid and reduce production and loosened inventories for fear of a looming crash. Demand, however, went in the opposite direction and got homebuilders and timber producers unexpected.

Demand for skilled contractors and building materials to build new homes and complete remodeling projects 2020 collided with the end of a record year for disaster losses when thousands of homes in the United States would also need to be reconstructed after devastating hurricanes, forest fires and other natural disasters. Materials and labor supply could not keep pace with demand.

Timber has been among the most affected materials, increasing the price of timber by 400% to $ 1600 per thousand feet on board in May 2021 and long lead times for securing materials. 2 The National Association of Home Builders (NAHB) reported that the cost increase from timber added $ 36,000 to the cost of building the average single-family home. 3

Widespread shortage of materials began to appear in the first half of 2021, resulting in houses approved for new construction, but not yet commenced, to reach the highest level since 1999 when builders began to hesitate. Reports in May indicate that builders had started pouring a concrete foundation and then stopped and waited. This recovery in construction helped lower timber prices from the highest levels in May, which then triggered sales of timber stocks hoarded by some builders, dealers and others worried about running out of materials. Tree costs have fallen by 40% since the peak in May, 4 in mid-June, but timber costs are not expected to return to normal at any time as demand is high and several pre-pandemic challenges remain, including a geographical displacement of where timber comes from.

In general, but especially until we see a certain balance back to the supply and demand of building materials, take the necessary steps to ensure that you do not get stuck in the holding pattern.
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1 https://www.fitchratings.com/research/insurance/us-property-casualty-insurers-see-record-losses-from-texas-storms- 24-02-2021
2 https://www.usatoday.com/story/money/markets/2021/06/23/home-building-lumber-prices-renovations-delayed-amidcovid/7768522002/
3 https://www.cnbc.com/2021/05/18/home-construction-sees-biggest-drop-since-pandemic-hit-heres-why.html [19659011] 4phia1945900 9] https: // www .wsj.com / articles / lumber-prices-are-falling-fast-turning-hoarders-into-sellers-11623749401


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