How Has the Spike in Lumber Prices Increased Home Costs?

How Has the Spike in Lumber Prices Increased Home Costs?

3 min read
Matt Myre

Matthew Myre is the founder of PurpleCup Digital, a web design and digital marketing agency. He’s also a former real estate agent and a freelance writer specializing in real estate economics, news, industry analysis, and more.

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Matthew has over ten years of experience in SEO, digital marketing, content marketing, web design, and other related subjects. In 2019, he entered the real estate industry as an agent, later to become a writer for BiggerPockets and other real estate firms throughout the US.

In 2020, just as the COVID-19 pandemic started, he started PurpleCup Digital and began working with different firms such as nonprofits and consultants. Since then, he’s been able to help clients, both new and long-time established, elevate their marketing systems and redesign their websites.

He’s also attempting to establish himself a YouTuber, where he speaks about productivity, managing workflows, and developing better lifestyles. These topics are also written about on his young personal website, matthewmyre.com.

Matthew spends most of his time reading, working on projects, and enjoying time with friends and family. He’s also an avid Monopoly player.

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Last March, lumber mills across the United States and the world shut down in response to the COVID-19 pandemic. Today, the economy is climbing back—but the aftershocks of last spring are rolling in harder than ever.

As of late April, lumber prices were up 67% from the beginning of the year and a massive 340% higher than one year ago, according to Random Lengths, a tracking firm for wood products.

With homebuyer demand maxed out, real estate markets across the nation are in desperate need of new construction. But if lumber remains as expensive as it is, there’s a real barrier to building homes.


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Lumber adds almost $36,000 to home costs

This time, last year, the average cost of lumber totaled around $350 per thousand board feet. Today, that number stands at about $1,200 per thousand board feet.

The inflated price has pushed home values even higher. The National Association of Home Builders (NAHB) estimates that the past 12 months of lumber costs have added an additional $35,872 to the price tag of an average new single-family home.

This comes amid a market gasping for more listings. New homes account for a quarter of active listings, which is the highest market share on record. But that’s not because enough new homes are being constructed. Instead, it’s due to a significantly low inventory of existing homes. For context, usually, new constructions take up around one-tenth of the total inventory.

With demand so high, home prices were naturally going to rise. Tack on high lumber costs and prices skyrocket. This is an issue, of course, since higher prices are locking out a lot of would-be buyers such as millennials and families with lower incomes.

It doesn’t stop at the sales market either. Multifamily homes, for instance, have increased in price by $13,000 on average. This has added an extra $119 to monthly rent, amplifying affordability concerns.

The strain on builders

Sticker prices are up at every level of real estate, but builders are footing the bill the earliest. Builders across the nation have lost access to wholesale lumber because the supply simply isn’t there.

Mills that shut down last year are behind. In fact, lumber is in such hot demand that there have been reports of theft on construction sites.

“Theft has been huge in our market. We have tens if not hundreds of thousands of dollars stolen during the year,” said Brant Chesson, the president and CEO of Homes By Dickerson in Raleigh, North Carolina.

On the other side of North Carolina, in Asheville, Matt Stephen, owner of Alpha Plus Services, a home building and renovation company, weighs in on the difficulty of the market’s prices. “It’s not just lumber. All materials are going up. Drywall, PVC, electrical wires, all of it,” he said. “I’ve lost more bids this year than any other because I’ve had to pass the cost of materials on to customers. It’s getting tough.”

For construction crews across America, that’s the reality. Rising costs make it more difficult to get desperately needed business. Many renovation projects are either downsized or halted altogether once homeowners take a look at their proposals.

The price of drywall is up nearly 7% from last year. Copper prices set a record high this April and steel was up 18% in March.

Builders are finding that the total cost to construct a new home is now double than it was a year ago.

What’s the fix?

Many are pointing fingers at politics, calling on the Biden Administration to take action. Labor shortages have been more pronounced as the economy recovers quickly, leaving many industries behind in their supply chains.

On the real estate side of things, the shortage of lumber has roots dating back to tariffs that were enacted in 2017. Lumber tariffs were slapped on Canada at a rate of 24% back then. As of late last year, they were reduced to 9%, but some have called for an outright abolishment of the tariff or a temporary suspension.

NAHB Chairman Chuck Fowke is in favor of suspending the tariff in an effort to ease price volatility.

“These lumber price hikes are clearly unsustainable,” said Fowke. “Policymakers need to examine the lumber supply chain, identify the causes for high prices and supply constraints, and seek immediate remedies that will increase production.”

While there’s been no official response from the White House in regard to the lumber situation, there are signs that prices could come back to Earth in the near future.

Jeffrey Mezger, CEO of KB Home, believes we’re through the thick of it. “The mills are coming back online. I think we’re past the worst of it in terms of supply availability.”

Others in the industry believe there could be a sharp drop off in lumber prices within the next 18 months.

While it’s promising to know that there’s an end to the mayhem, 18 months is a long time. Investors should monitor developments between now and then—and pay attention to the specifics of any government response.

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