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Pandemic causes lumber prices to skyrocket, sending new home prices up as well

Pandemic causes lumber prices to soar
Posted at 11:02 AM, May 06, 2021
and last updated 2021-05-06 11:02:01-04

The number one material used to make most homes is lumber.

“Anything that is a structural number in our homes is predominantly manufactured out of wood,” said David Lemnah, President of Lokal Homes.

Finding the wood, and for the right price, is hard for home builders like Lemnah.

“Something that should be less than $20 is almost like gold these days. $53 for a sheet,” he explained.

The U.S. is seeing a hot buyers market for new homes, and a sharp increase in the cost of lumber.

“Maybe in the past, somebody would be happy to sell a house six months before it starts,” he said. “I don't think you see many people who are willing to do that these days.”

And that’s because builders like Lemnah have no idea how much it’s going to cost them in just a few months.

“It’s pricing people out of the market. It’s doubling the framing package on houses,” said Eric Holt, a construction management expert and assistant professor at the University Of Denver Burns School of Real Estate and Construction Management.

He said he’s never seen anything like this in his 30 plus year career.

“This bad? After the 1917 influenza pandemic. If you go back that far in history yes, there was a spike like this then,” he said.

Looking at the numbers, estimates from the National Association of Home Builders shows the surge in lumber prices between April 2020 and April 2021 has added $35,872 to the price of an average single family home.

“An increase in price of $1,000 per home will take 150,000 buyers out of the market for that particular house. So you're looking at real constraints on housing affordability,” said Jerry Howard, Chief Executive Officer of the National Association of Home Builders. “Keeping lumber supplies at a reasonable level is important to America for economic reasons and for helping first time home buyers and other Americans achieve and maintain the dream of home-ownership. Lumber is crucial to us being able to do that.”

With the lack of lumber, home builders are struggling to keep up. Homes are selling in days for over market price in some states.

“We’re not getting rich in the process, in fact, I would say many are probably making less because it is so hard to manage the input costs and the time duration is extending so much that it’s very, very difficult to manage right now,” Lemnah said.

While the price of lumber has been hard for people to track, Howard said the next few months aren’t looking good.

“Evidence in the futures market seems to indicate that this price problem is going to continue,” he said.

“There’s a lot of homeowners that either have to downsize, increase their budget, bring more to the table, or flat out just can’t build,” Holt said.

Looking even further down the line, as sawmills return to work in full force after pandemic-related closures, Lemnah said things should eventually even out.

“You will start to see the production chase the pricing that exists. Ultimately, that's the best tool we have is we find that equilibrium between supply and demand,” he said.