Wood prices are dropping record highs, but house prices are not
Home prices are skyrocketing, pushed up by a combination of record mortgage rates, strong buyer demand and a persistent shortage of new construction.
In 2021, a new factor put pressure on house prices: month after month, wood prices hit new highs. Wood costs climbed more than 30 percent from January to May.
However, lumber prices are finally cooling a bit as sawmills ramp up production to meet frenetic demand. In June, lumber futures prices fell below $ 1,000, 45% below their spring high.
Despite this, the National Association of Home Builders says high lumber prices still weigh thousands of dollars on the cost of a new home, an unwelcome increase for buyers who are already struggling to find homes they can. to afford. The trade group lobbied President Joe Biden and Congress to end tariffs on Canadian lumber sent to the United States.
The Department of Labor’s Producer Price Index shows lumber more than doubled from May 2020 to May 2021. The National Association of Home Builders says the price has tripled in just 12 months.
Activity in the futures markets was even brighter. The price of lumber for March delivery looks like a Bitcoin or Gamestop stock price chart.
A series of cascading effects
Usually, home 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 says he has been forced to postpone construction starts, delays that will limit the supply of homes before the spring sales season.
A builder in Alabama reports that the bill for the 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 Association of Home Builders 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 claims appraisers ignore lumber prices in their analysis and therefore dump homes.
PulteGroup, one of the country’s largest builders, said it expects to increase prices this year by passing on the rising cost of lumber. “Driven primarily by increases in lumber and labor, our house costs will be higher in 2021,” said Robert O’Shaughnessy, CFO of PulteGroup, in a recent call for 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.
Wood is only one factor in the price of houses
The dramatic increase in lumber prices has made headlines in recent weeks. But wood costs are only one factor in the complicated equation behind home prices.
The most important factor is supply and demand. The population of the United States, and particularly the generational explosion of millennials entering their 30s and starting their homes, is growing faster than the number of available homes. This means that even if wood prices come back to earth, house prices are unlikely to follow.
âLumber isn’t the main reason homes are unaffordable,â says Alex Barron of the Housing Research Center in El Paso, Texas. âIt’s the lack of resale offer – too many homes are still in the hands of owners and investors. We had no post-crash land development for over a decade. “