Building new homes to meet the intense demand for single-family homes that has driven prices to record highs and supply to record lows during the pandemic promises to get more expensive.
Bloomberg reported last week that U.S. lumber futures for 1,000 board feet of the stuff we build houses with went over $1,500 for the first time, hitting as high as $1,544.30 for July delivery.
The National Association of Home Builders (NAHB), meanwhile, says that soaring lumber prices have in a single year added an estimated $35,872 to the average price for a newly built single-family home and $12,966 to the average unit price for multifamily construction. That means $119 more a month to rent a new apartment, the trade group says.
That has helped push the median sales price of new single-family houses in March to $330,800 and the average sales price to $397,800, according to the most recent figures from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.
That same report showed how intense demand has gotten. March sales of new, single-family homes were 20.7% above February's and 66.8% above March 2020 at a seasonally adjusted rate of 1.02 million.
New home sales are reflecting the experience of the much-larger overall market. The National Association of Realtors (NAR) said the median price of an existing home in the United States hit a record high of $329,100 and were moving at a seasonally adjusted rate of 6.01 million sales. Housing inventory at the end of March was down 28.2% year over year, and time on market hit 18 days, a record low, the trade group said in its April 22 report.
Spreading around some blame
Builders, of course, don't buy from sawmills but from lumber yards and other suppliers for a wide range of wood products they need to build a house, from beams and trusses to cabinets, windows, porches, doors, and decks.
And it's not just wood products. Steel prices also have risen sharply, causing builders in all kinds of industries to scramble, strategize, and even delay projects, according to Construction Dive.
The NAHB takes aim at the lumber producers for much of the problem in that sector. In an April 30 blog, the trade group said those producers did not respond quickly enough after the initial pandemic shutdowns, even when it became clear that demand would remain strong, both from builders and do-it-yourselfers.
"The extreme lumber price volatility has been exacerbated by tariffs on Canadian lumber imports into the U.S. market," the NAHB adds.
The U.S. Lumber Coalition, however, begs to differ, saying supply and demand is driving up prices, not tariffs. Here's that trade group's argument as laid out to Woodworking Network in an April 27 article.
The impact on American wallets and attitudes
Arguments aside, these soaring prices are having an effect on the wallets and psyche of a lot of prospective homeowners seeking to remove that "prospective" part.
An NAHB study released in January found that nearly 160,000 households are priced out of a home for each $1,000 increase in the median price, unable to afford the payment even in today's record-low rate environment.
As for the psyche part, Fannie Mae (OTCMKTS: FNMA) found notable discouragement in its latest Home Purchase Sentiment Index, where it detected negativity toward homebuying conditions for the first time in the index's 10-year history.
"Notably, consumers in the household income range of $50,000 to $100,000, a range inclusive of the Census Bureau's reported median household income level, showed a particularly large decrease in overall housing sentiment, and we know that the housing market serving the affordable segment has been particularly competitive," Doug Duncan, the government-sponsored enterprise's senior vice president and chief economist, said in that May 7 report.
The Millionacres bottom line
The housing market -- driven by low rates and high demand -- has been touted as one of the bright spots of the pandemic economy.
But, as the NAHB says, "These sharp increases threaten housing affordability and the strength of the housing sector, which is leading the nation's economic recovery."
Look for lobbyists and lawmakers to keep up the call for changes to solve issues, each group primarily focused on its own piece of the puzzle.
As for real estate investors, the bottom line is the price of a property and whether it's a deal or a dud. And price hikes large enough to narrow the field of potential buyers and renters just complicate things further.
But these decisions don't happen in a vacuum. A rapid recovery from the pandemic, if that's truly in the cards, would ideally solve a lot of these issues, helping supply catch up with demand as industries get enough workers back -- and workers get enough income back.
We shall see.