Lumber prices hurting home buyers’ wallets and builders feeling the pressure
The price of wood is skyrocketing, and the increase in lumber prices is causing construction projects to stall and housing prices to soar.
Already up 67% this year and 340% from this time a year ago, wood has become an increasingly expensive commodity during the COVID-19 health crisis.
The dramatic price increase is thanks to rising lumber tariffs and the pandemic forcing production to shut down. COVID also gave homebuilders the false impression that demand for new homes would be down when the opposite turned out to be true.
“Clearly, increasing the cost of imports via tariffs does not help the situation,” Robert Dietz, chief economist for the National Association of Home Builders told CNBC. “We need to do everything that we can to increase domestic supply, including producing more domestic lumber, as well as resolving the trade dispute. It is matter of housing affordability.”
A new single-family home will now cost an average of nearly $36,000 more than before and add nearly $13,000 to the market value of a multifamily home, according to the NAHB.
Despite the more-expensive price tag, new housing construction was up 41% in March compared to the year before.
“We have seen, over the last four or five months, what I have never seen in my career before, is lumber to move to the level it has,” Sheryl Palmer, CEO of homebuilder Taylor Morrison told CNBC. “We are very anxious to see full capacity back domestically. I think if we can get the full supply on, we can get lumber to level out a bit.”
Other home-building materials have also increased in cost, with gypsum (used for drywall) up almost 7% from a year ago, steel mill products up 18%, and copper up 27%.
Land itself is also more expensive, with the price of a new lot up 11% compared to a year ago, despite the fact that supply of new lots is down 20%.
Demand is high and supply is low, in other words.
“There’s a literal land grab going on as builders are scooping up lots to better match housing supply with demand,” Ali Wolf, chief economist with market research and real estate-tracking company Zonda told CNBC. “The lot supply shortage is real, and it is causing prices to rise and builders to move further into the suburbs.”
Beyond building new homes, construction projects in general have been forced to shut down as the material cost increases force firms to take a recess.