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May 5, 2021

Lumber Costs Impacting Home Prices

There’s a chance you’ve heard the cost of lumber has skyrocketed over the past year, and if you or someone you know has bought a newly constructed home, I can guarantee you’ve heard about it, including a curse word or two.

Emily Stewart, Senior Reporter for Vox, recently wrote of the lumber increases, “For years, the price of 1,000 board feet of lumber has generally traded in the $200 to $400 range. It’s now well above $1,000. (One board foot is 12x12x1 inches, and the average new single-family home takes about 16,000 board feet of lumber to construct.) A new house that would have cost $10,000 in wood to get off the ground a couple of years ago now costs $40,000 worth of wood — assuming, that is, you can even get your hands on the lumber.”

As with everything in 2020, COVID made an impact on the situation. Many thought that the housing market, specifically new construction, would take a hit. Short term, there was a slowdown due to consumer uncertainty and the shift to a virtual world from everything from showings to closing. Yet, at the end of April 2020, the housing market began a roaring back. Since then, sellers are getting offers at and above the asking price each week, and homes are spending fewer days on the market.

Spend just a few minutes on social media, and you’re sure to see a plea from a REALTOR® seeking homes not yet on the market to satisfy the growing buyer demand. Low mortgage rates are driving this buyer demand despite increasing prices due to low inventory. Pair all those factors with lumber mills trying to reach pre-COVID production levels, and it’s easy to see why lumber prices are so high.

A recent study from the National Association of Home Builders (NAHB) showed that 47 percent of builders now include price escalation clauses in their sales contracts. More builders are pre-ordering lumber to help avoid cost increases, and 22 percent are obtaining price guarantees from suppliers. Yet, those price guarantees don’t often stretch past two months, and it looks like this crunch will be with us at least in the short-term.

The NAHB study also shows that ten percent of homebuilders’ contracts now include a shared price clause, which is similar to price escalation clauses in that they tie the final house price to the price of building materials. Paul Emrath, NAHB’s vice president for survey and housing policy research, said on the NAHB’s blog, “The difference is that, in the typical shared price clause, the home builder agrees to absorb part of the material price increase, with the home buyer covering the rest.” Emrath added that while these price escalation clauses may help to protect builders from rising costs, customers unable to afford the escalated house prices will result in lost sales.

Thankfully many organizations are working to find ways to bring lumber costs down. On behalf of 35 organizations, including the National Association of Realtors®, the NAHB wrote to Commerce Secretary Gina Raimondo urging the Biden administration to “undertake a thorough examination of the lumber supply chain and seek remedies that will increase production.” This shows that Realtors are working with our partners to do all we can to help consumers.
These construction costs are being passed along to the consumer, so don’t be surprised to see the cost of a newly constructed home. These factors might make buying a home seem out of reach, but working with a Realtor® will make sure that you’re getting the most out of your investment. That’s Who We R®.