The housing market is already having problems on the supply side. Now, it’s getting worse as the price of raw materials like lumber is going up, up, and away. In addition, many homebuilders are complaining about the slow arrival of cabinets, doors, countertops, and appliances.
Housing Market Having With High Lumber Prices
After lumber prices hit record highs last May, they began going down the rest of 2021. However, prices began rising up again last December.
While 22% lower than May’s peak prices, lumber prices remain three times their pre-pandemic rates. This is according to Random Lengths, an Oregon-based lumber supply, and prices publisher.
Also, higher lumber prices are substantially adding to the cost of new homes and remodel fees for existing ones.
The National Association of Home Builders estimated soaring lumber prices accounted for an additional $18,600 for the price of a new home.
For an average multi-family home, lumber added $7,300. This means that households need to pay about $67 a month more to rent a newly-built apartment.
Home Builders Having Difficulty Adding New Homes Due to High Lumber Prices
Meanwhile, NAHB calculated these average home price increases based on the softwood lumber used in an average new home. David Logan, director of tax and trade analysis at NAHB, said that higher material costs are disrupting the industry.
Additional costs are hampering efforts by home builders to add to the already low housing inventory. Right now, there are fewer units available in the housing market, as low mortgage rates and favorable demographics are spurring the demand for new home purchases.
However, with construction firms unable to add new units to the housing market, this led to unsustainable gains in prices.
While there are several factors behind high house prices, a major one is the lumber supply crisis. Sawmills can’t keep up with demand, especially since the industry remains handicapped with pandemic labor shortages.
Other issues contributing to higher lumber prices include additional supply chain disruptions. This includes tariffs on Canadian lumber imports.
Unusual strong wildfires are also affecting supplies from the American West and British Columbia.
Production Disruptions Eroding Builder Confidence
In addition, builder confidence, while remaining high, is going down. Builder confidence in the single-family housing market fell by 1 point to 82 in February.
This is based on the National Association of Home Builders/Wells Fargo Housing Market Index. Last year, the index stood at 84 in February.
NAHB Chairman Jerry Konter said that supply chain issues are affecting the supplies of home fixtures.
“Production disruptions are so severe that many builders wait months to receive cabinets, garage doors, countertops, and appliances. These delivery delays are raising construction costs and pricing prospective buyers out of the market,” Konter noted.
This combined with surging lumber prices to add thousands of dollars to the cost of new homes.
Watch the Uneducated Economist video explaining why lumber prices are going up:
Are you a home buyer? Are higher home prices preventing you from buying a new home? Homebuilders, do you find lumber prices back to crazy high prices? Do these prices prevent you from building more homes?
Tell us what you think. Share your thoughts in the comments section below.