Soaring Lumber Prices Add Nearly $36,000 to the Price of a New Home

Real Estate

Soaring Lumber Prices Add Nearly $36,000 to the Price of a New Home

Skyrocketing lumber prices that have tripled over the past 12 months have driven the price of an average new single-family home to rise by $35,872, according to an analysis conducted by the National Association of Home Builders (NAHB). The price spike is threatening to hobble the momentum of the U.S. housing market, one of the bright stars of the recovery from the pandemic recession.

While homebuilders remain somewhat optimistic, the supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances, and other materials, according to the NAHB.

At the onset of the health crisis, the mills stopped producing. As soon as they saw 20 million unemployed, they shut down production. But the pandemic drove demand for housing in low population density areas and for home office space, while the Fed dropped interest rates, driving mortgage rates down to historic lows. This confluence of factors turned out to be a boon for housing, with surging demand pushing housing inventories to record lows.

Lumber producers have struggled to catch up with the bustling homebuilding activity, with lumber prices jumping more than 300 percent year-on-year to record highs. The logging operation, the shipping of the logs to the mill, the shipping of the finished product, getting workers back on the job, it’s not like flipping a switch to bring those back online, according to Dustin Jalbert, senior economist and lumber industry specialist at Fastmarkets of Burlington, Massachusetts.

The lumber price hike has also added nearly $13,000 to the market value of an average new multi-family home, reports the NAHB. This translates into households paying $119 a month more to rent a new apartment. The NAHB has called on the White House to hold a summit on lumber and building material supply chain issues and temporarily remove the nine percent tariffs on Canadian lumber to help reduce price volatility.

In the short term, mills are moving toward meeting the demand boom. Industry observers believe the lumber industry is going to hit production capacity this summer, but things are expected to calm down in 2022.

While lumber prices have surged, the cost of concrete has remained stable, with more homebuilders considering this alternative to keep costs down, such as the use of insulating concrete forms, which are polystyrene forms that are stacked in place and then filled with concrete to form a solid wall.

Dec 17, 2020 Real Estate