A contractor frames a house under construction in Lehi, Utah, U.S., on Wednesday, Dec. 16, 2020. Private residential construction in the U.S. rose 2.7% in November.
George Frey | Bloomberg | Getty Images
Consumers want more newly built, affordable homes, but builders are finding that hard to deliver, especially as prices for framing lumber spike ever higher.
Lumber prices inched above $1,000 per thousand board feet Thursday morning before falling back below that benchmark, according to Random Length Lumber Futures (Mar 2021). The high of $1,004.90 is double the price from just three months ago and a record.
Higher lumber costs are likely behind a drop in January housing starts. Starts of single-family homes, which are the most desperately needed, fell 12% compared with December, according to the U.S. Census.
“Builders report concerns over increasing lumber and other construction costs and delays in obtaining building materials,” wrote Robert Dietz, chief economist at the National Association of Home Builders. “Rising interest rates will also erode housing affordability in 2021, as inventories of existing homes remain low.”
Dietz also noted that the number of single-family homes permitted but not started construction jumped 9.6% in December and was 28% higher than a year ago, as building material cost increases and delays slow some home building.
Executives of some of the nation’s largest public homebuilders have noted on earnings calls that they have slowed production, hoping to wait out some of these higher costs.
Unfortunately, it doesn’t look as if costs are coming down. There are several factors that should have taken the pressure off prices, but so far have not.
Joe Sanderson, managing director of natural resources at Domain Timber Advisors, points to these recent developments:
- The Canadian lumber tariff dropped in December from 20% to 9%. Therefore, Canadian lumber is cheaper, and there are more lumber imports coming into the U.S.
- La Niña conditions are resulting in a dry weather pattern across much of the South. The drier-than-normal winter has led to additional logging capacity, which bolsters lumber supplies.
- New lumber mills have come online in recent months.
He added that lumber producers are trying to lock in yield and returns in the first quarter of the new year while demand is strong. They are therefore running at a higher capacity than normal to take advantage of these prices, which can lead to an oversupply.
Strong housing demand, low-interest rates and a boom in home remodeling continue to push prices higher. At some point, however, the basic reality of affordability should at least slow some of the growth.