High timber prices add $ 36,000 to the cost of a new home, and furious farming only makes it worse
As the housing market becomes thinner, potential buyers are turning to new construction more than ever, but construction costs are rising.
- The increase in lumber prices in the past year added $ 35,872 to the price of an average new single-family home and $ 12,966 to the market value of an average new multi-family home, according to the NAHB.
- “We’ve seen, over the last four or five months, what I’ve never seen in my career before is wood to move to its level,” said Sheryl Palmer, CEO of Taylor Morrison Home.
- New supply of lots decreased 20% from a year ago, according to Zonda.
As the housing market declines more, potential buyers are turning to a record new construction, but several factors are making those homes more beautiful than ever before.
First there is a major change in the composition of the market due to the record lack of existing homes available. About 1 in 4 homes for sale are now newly built, the highest ever. Historically new homes make up about 1 in 10, but fierce buying competition is behind that change. Prices for new and existing homes are reaching record highs.
But it’s not just competition fueling prices for new homes. The cost of what goes into the home is added to it as the prices of material and land rise.
Savings prices seem to be setting a new record almost every day, now more than 67% this year and 340% more than a year ago, according to Random Lengths, a wood products tracking firm. And wood doesn’t just frame a house. Those additional costs hit closets, doors, windows and floors.
Timber prices are skyrocketing for a variety of reasons beyond just high demand from home builders and renovators. Wood tariffs had prices already rising a year ago, but then, when the pandemic hit, production stopped. The expectation was that housing demand would dry up for a long time. But instead, after a short pause, it came back roaring back. Home builders were caught on guard, as well as timber producers.
“Clearly, increasing the cost of imports through tariffs is not helping the situation,” said Robert Dietz, chief economist at the National Association of Home Builders. “We need to do everything we can to increase domestic supply, including producing more domestic timber, and resolving the trade dispute. It’s about livability.”
The increase in lumber prices in the past year added $ 35,872 to the price of an average new single-family home and $ 12,966 to the market value of an average new multi-family home, according to the NAHB.
Workers are installing roofs on a new house in Arvada, Colorado.
Rick Wilking | Reuters
Some builders said they are slowing production in the face of excessive costs, but single-family homes grew 41% in March year-over-year, according to the U.S. census. Builders are clearly trying to grow production as fast as they can to meet growing demand.
Palmer said she has seen demand grow across all geographies and all segments of the market, especially first-time buyers and more than 55 buyers. Construction costs, however, are out of control, she said.
“We’ve seen, over the last four or five months, what I’ve never seen in my career before is wood to move to its level,” Palmer said. “We really want to see full capacity at home again. I think if we can get all the supply, we’ll be able to wood a little bit. “
But it’s not just wood. The prices of plaster, which is plasterboard, are up almost 7% from a year ago.
Steelmaker prices are record high, up nearly 18% in March year-on-year. It is used for beams, tin products and wiring.
The price of copper has also hit a high this month and so far is 27%.
And then there is earth. The price for one lot has grown 11% this year compared to last year because demand is so high and supply is low. New supply of lots declined 20% a year ago, according to Zonda, a data and consulting real estate company.
The inventory is most stringent in San Diego, Baltimore and San Francisco. Nashville is also now seeing one of the biggest supply cuts. Lot supply in 90% of the main markets tracked by Zonda is considered significantly insufficient.
“It’s a literal catch, as builders are collecting lots to better match housing with demand,” said Ali Wolf, Zonda’s chief economist. “The supply of a lot of shortage is real, and it’s causing prices to rise and builders to keep moving into the suburbs.”
Wolf adds that the new housing market is not fulfilling its full potential, and will last as long as the much-needed shortage continues. Add higher commodity prices to that equation and the new domestic market will continue to struggle at a time when it should reap great rewards from hungry buyers.