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Insane lumber prices mean new homes cost $24K more

Homebuilders' problem isn't demand – it's finding materials at a reasonable price

With lumber prices and other building material costs still at record-high levels, homebuilder confidence fell two points in March, per the latest report from the National Association of Home Builders.

That drop in builder confidence is in spite of sky-high buyer demand, which hasn’t waned despite rising home prices and climbing mortgage rates – the latter up 30 basis points from February.

The COVID-19 pandemic shut down a large swath of lumber mills in early 2020, handcuffing homebuilding crews all over the country and forcing home prices upward. NAHB Chairman Chuck Fowke noted that supply shortages and high demand have caused lumber prices to jump “about 200%” since April 2020.

“The elevated price of lumber is adding approximately $24,000 to the price of a new home,” Fowke said. “Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month. Policymakers must address building material supply chain issues to help the economy sustain solid growth in 2021.”

A Homesnap report said total new listings increased only .22% in December, while total sales increased 19.29%. And Zillow’s Producer Price Index – a measure of the average sell prices that domestic producers of products receive – found February’s 2.8% annual increase was the strongest since October 2018, meaning that while homes are being snatched up, building material inventory, including lumber, will remain low and expensive.


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The NAHB Housing Market Index (HMI) gauge, which notes numbers over 50 as “high” for home buying traffic, show the Northeast and Midwest sitting at 80, the South at 82 and the West posted at 90. The South and West were two and three points higher last month, though. The HMI also scored prospective buyer traffic as a 72, even with February and up four points from January.

Like most facets of the current housing environment, the continued successful rollout of the COVID-19 vaccine should do wonders for the cost of building materials, as more lumber plants will reopen in Canada and the U.S. – thus, increasing inventory and driving overall prices down. And with more homes being built, overall sentiment – and builder confidence – should rise, Fowke said.

The second round of stimulus checks from President Joseph Biden’s American Rescue Plan should inject some life into the housing market as well, as prospective home buyers make offers or place down payments with the money received.

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