Skyrocketing Lumber Prices Deal a Blow to Builder Confidence
Rising material costs and a resurgence of COVID-19 is constraining industry growth.
Rapidly rising lumber prices are constricting the development of single-family homes, with builder confidence hitting a low of 83 in January.
Rising material costs (led primarily by lumber, which has continued a steady increase over the past year) together with a resurgence of COVID-19 has pushed confidence lower, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index released today. Though housing demand is high across the country and mortgage rates are near historic lows, a lack of new homes on the market is exacerbating affordability – and higher material costs, a lack of affordable lots and labor shortages compound the problem.
The price of lumber in particular increased by 20% in December to $650 per thousand board, according to data from Random Lengths and reported by the NAHB. That followed a steady increase since the pandemic began in March; from April to August, according to the NAHB, the price of lumber increased by 110% and hit an all-time high of $950 per thousand board in September. The net result? A huge hit to developers’ bottom line: the NAHB estimates that increased lumber costs increased the price of new single-family homes by $14,000 and apartment prices by $5,000.
“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” said NAHB Chief Economist Robert Dietz. “A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability.”
All three major NAHB/Wells Fargo HMI indices measures – including builders’ perception of current single-family home sales, sales expectations for the next six months, and their view on traffic of prospective buyers – fell in January. Overall confidence among builders in the Northeast fell the most, by six points, while the South and the West regions both posted a one point drop. The Midwest recorded an increase of two points.