A few months ago the Log Cabin Democrat reported that, according to the National Association of Home Builders, lumber prices had increased 14.9 percent in August. Currently, lumber prices continue to be at historically high prices.
CNBC reported this week that “lumber prices inched above $1,000 per 1,000 board feet (mid week) … before falling back below that milestone, according to Random Length Lumber Futures for March.” They added that the high of $1,004.90 is double the price from just three months ago and a record.
How does this affect those consumers looking to build or renovate, and to those home builders trying to find contracts? According to NAHB, “soaring lumber prices are adding thousands of dollars to the cost of a new home, pricing out millions of potential home buyers and impeding the residential construction sector from moving the economy forward.” This as a whole is a downer, as the housing market has been touted by experts across the board as a bright spot in the economy during the Covid pandemic.
Another complication with this scenario seems to be a drop in housing starts. In analyzing a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, NAHB says housing production softened in January, with overall housing starts decreasing 6 percent to a seasonally adjusted annual rate of 1.58 million units.
“The January reading of 1.58 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 12.2 percent to a 1.16 million seasonally-adjusted annual rate.”
With a decrease in housing starts and an already low availability of existing homes, could this cause some difficulties in the housing market? According to at least one expert, the answer is yes.
“Concerns over higher lumber prices produced softness for the housing market amid solid buyer traffic at the start of the year,” said Chuck Fowke, chairman of the NAHB and a custom home builder from Tampa, Fla. “With the cost of building materials rising at a rapid pace, the challenge for builders is to keep home prices at an affordable level for buyers even as the regulatory policy environment may become more challenging.”
Another NAHB expert sees money loss as a problem for homebuilders. According to Alicia Huey, a high-end custom home builder from Birmingham, Ala., and second vice chairman of NAHB, the price of her lumber framing package on an identically sized home has more than doubled over the past year from $35,000 to $71,000. “This increase has definitely hurt my business,” she said. “I’ve had to absorb much of this added cost and even put some construction on hold because I would be losing money by moving forward.”
A quick look at information from a variety of housing experts shows that most feel residential construction will continue to cool down due to the rising prices of materials. And this includes new homes and even demand for renovations and add-ons (such as wood decks and extra square footage).
“Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks,” said NAHB Chief Economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to these headwinds.”
For more information, check out the NAHB/Wells Fargo Housing Market Index (HMI) tables at nahb.org/hmi.