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Rising Lumber Costs Add $36K To New Home Sales Prices

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Low mortgage rates, booming buyer demand and stifled inventory aren’t the only culprits behind soaring home prices, according to two reports by The Wall Street Journal and CNBC published over the weekend. Sales contracts for two-by-fours reached an all-time high of $1,500.50 per thousand board feet in May, WSJ reported, with on-the-spot costs surging to $1,290.

Outside of causing headaches for homebuilders who are feverishly working to boost inventory, CNBC said the bump in lumber costs has tacked an extra $35,872 onto the price of an average new single-family home — a piece of unwelcome news for buyers already struggling to navigate a red-hot market.

“We have seen, over the last four or five months, what I have never seen in my career before, is lumber to move to the level it has,” Taylor Morrison CEO Sheryl Palmer told CNBC on Friday. “We are very anxious to see full capacity back domestically. I think if we can get the full supply on, we can get lumber to level out a bit.”

National Association of Home Builders Chief Economist Robert Dietz said a dearth of domestic lumber supply, former President Donald Trump’s 24-percent lumber tariff against Canada, and the added pressure to ramp up housing starts have contributed to the rising cost of homebuilding, which is being shouldered by homebuyers.

“Clearly, increasing the cost of imports via tariffs does not help the situation,” Robert Dietz told CNBC. “We need to do everything that we can to increase domestic supply, including producing more domestic lumber, as well as resolving the trade dispute. It is a matter of housing affordability.”

Pricing service Random Lengths said lumber prices are far from their peak, as lumber mill owners report backorders well into June and July. The locked-in price for June lumber deliveries reached $1,376.50 per thousand board feet on Friday, with a slight decline projected for lumber sales contracts not coming until September ($1,235).

“Absent a significant increase in mortgage rates or a Covid resurgence, it is hard to imagine what could cause lumber demand to drop and prices to moderate in the foreseeable future,” PotlatchDeltic Corporation CEO Eric Cremers told WSJ. “Builders are reporting record home sales, and they’re going to need that wood to build those homes.”

Even as lumber producers fight their way back to peak production levels, there are other culprits sneakily raising home prices: the cost of gypsum (a.k.a. drywall) is up 7 percent year over year, and steel costs 18 percent more than it did a year ago.

Copper has experienced an even higher ascent, with prices increasing a record 27 percent annually. Lastly, single lot costs have risen 11 percent as availability dwindles.

“There’s a literal land grab going on as builders are scooping up lots to better match housing supply with demand,” Zonda Chief Economist Ali Wolf told CNBC of the single-lot shortage. “The lot supply shortage is real, and it is causing prices to rise and builders to move further into the suburbs.”

For now, Palmer said ramping up domestic lumber supply is the best avenue for tempering new home costs and providing homebuyers with much-needed relief.

Email Marian McPherson



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