By now you’ve heard about the surge in pricing for lumber and other building materials. How bad is it? The National Association of Home Builders reports overall increases of more than 300% since last year.
Several factors have combined to create this perfect storm of spiraling costs: Stuck at home during the pandemic, many people devoted their time and funds – money that might have been used for vacations in a normal year – to home improvements. This increase in demand came just as many mills and other production facilities shut down due to pandemic restrictions, putting a crimp in supply. And historically low interest rates further fueled the situation as people financed both home improvements and home purchases.
In short, demand for lumber has far outstripped supply, at least in the short term, which is likely to cool off the construction and renovation market.
There’s another consideration here, and that’s the impact of the current building materials market on your homeowner’s coverage, which could be twofold: First, your current coverage limits might not be adequate at current lumber prices; and second, it’s likely that some insurers will raise premiums in anticipation of increased claim expenses.
We encourage you to be proactive in addressing your homeowners coverage in the following ways:
Review your policy: Do you have replacement cost coverage or actual cash value (ACV) coverage? The former covers rebuilding your home to like-new condition in the event of a loss, while the latter offers compensation for the depreciated value of your home. The difference could be significant, especially now.
Consider adjustments: Consult your insurance professional to map out a course of action. That might involve increasing your current limits, changing your valuation method, or adding specialized coverage or an endorsement.
Communicate: If you were part of that wave of home renovations, make sure your insurance professional and your policy are up to date. An addition, deck or kitchen remodel will affect the value of your home, but your insurer will have no way of knowing that unless you communicate what you’ve done.
The only thing worse than a fire, water damage or other loss is finding out you’re not adequately covered. Make sure your policy is up to the task in this current high-priced lumber market.
Questions about homeowner’s coverage? Contact Consolidated Insurance.