Home prices are skyrocketing, pushed up by a combination of historically low mortgage rates, strong buyer demand and a persistent shortage of new construction.
For 2021, add another wrinkle: wood prices have reached new highs. Wood costs have climbed more than 30% this year, and they have nearly tripled since the economic downturn sharply last spring.
The National Home Builders Association says soaring lumber prices are weighing thousands of dollars on the cost of a new home, an unwelcome increase for buyers who are already struggling to find homes they need. they can afford. The trade group lobbied President Joe Biden and Congress to end tariffs on Canadian lumber sent to the United States.
The Ministry of Labor’s producer price index shows lumber nearly doubled from April 2020 to March 2021. The National Association of Home Builders says the price has tripled in just 12 months.
The activity in the futures markets was even more breathtaking. The price of lumber for delivery in March looks like a price chart for Bitcoin or Gamestop stocks.
A series of cascading effects
Usually, buyers can ignore the intricacies of lumber futures markets and trade policy with Canada. But the intensity of soaring wood prices is affecting consumers.
The National Association of Home Builders points to a variety of setbacks created by the lack of lumber. A builder in Georgia has said it has been forced to postpone housing starts, delays that will limit the supply of homes as the spring selling season approaches.
An Alabama builder reports that the bill for lumber used to frame a typical new home has gone from $ 35,000 a year ago to $ 71,000 now. Reflecting this observation, the National Home Builders Association says soaring lumber prices have pushed up the price of an average new single-family home by $ 35,872 this spring compared to spring 2020.
In another wrinkle, a Kansas builder says appraisers ignore lumber prices in their analysis and therefore dump homes.
PulteGroup, one of the largest builders in the country, said it expects to increase prices this year by passing on the rising cost of lumber. “Driven primarily by increases in lumber and labor, the costs of our homes will be higher in 2021,” PulteGroup CFO Robert O’Shaughnessy said in a recent call for help. results.
Home builders aren’t the only buyers of lumber, of course. Homeowners who are renovating their homes have also diverted some of the supply by building fences, decks and additions.
Lumber is only one factor in the price of houses
The dramatic rise in lumber prices has made headlines in recent weeks. But wood costs are only one factor in the complicated home price equation.
The most important factor is supply and demand. America’s population, and especially the generational swelling of millennials entering their 30s and starting households, is growing faster than the number of homes available.
“Wood isn’t the main reason homes are unaffordable,” says Alex Barron of the Housing Research Center in El Paso, Texas. “It’s the lack of resale supply – too much housing is still in the hands of owners and investors. We had no post-crash land development for over a decade.