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Real Estate

Homebuilders face high lumber prices

Builders also struggling to obtain construction credit

Total housing starts rose 35% year-over-year in the first quarter of this year, according to data from Deloitte. Single-family home construction contributed 500,000 jobs to the economy year-over-year in July, implying a thriving builder market.

But many homebuilders are coming up against a number of problems that are jolting their success beyond recent stock woes.

For instance, a spike in lumber prices is one factor that is restraining home building. Lumber prices have been driven steeply higher over the past year as a result of rising home prices couples with increasing international lumber demand and global lumber shortages following insect epidemics.

In Northern Europe, many sawmills have expanded their lumber sales outside the Europe market over the past few years, contributing to an increase in non-European exports from 27% of total exports in 2007 to 43% in 2012, reports Wood Resource Quarterly. The biggest changes have been in shipments to Northern Africa, Middle East, Japan, China and the US.

Deloitte estimates that global demand for lumber is more than double current supply capabilities.

Aside from lumber and material costs, homebuilders have claimed difficulty in obtaining construction credit and mortgage lending rules as other factors that have contributed to limited housing supply.

Construction and land development loans made up 2.0% of the total loan portfolio in the first quarter of 2013, down 7.7% year-over-year, according to data from Keefe, Bruyette & Woods.

The same report claimed that the non-performing loan ratio for construction and land development loans dropped 128 basis points to 4.14%, driven sequentially by a 23% drop in aggregate non-performing loans and a 0.7% growth in construction and land development loan balances.

3d rendering of a row of luxury townhouses along a street

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