Lumber Prices and the State of the Housing Market in 2021

The COVID-19 pandemic slowed many industries to a crawl. Lumbering was one of the industries whose production suffered a steep decline owing to a housing slump projection and the spread of coronavirus among personnel. The projections were off; the slump never happened. Instead, demand for new houses is growing as the economy opens up.

Undersupply of lumber and high demand for the material has led to a spike in the cost of lumber. Builders and contractors are moving the additional cost of lumber on to first-time buyers and homeowners by increasing the buying prices for the former and quoting higher charges for expansion and renovation to the latter. Let’s take a deep dive into the relationship between lumber prices and the state of the housing market in 2021.

 

High lumber Prices Are Mounting Pressure on First-Time Buyers.

Wildfires in 2020 strained the domestic production of lumber. The international market does not look good either, with the previous Trump administration slapping massive tariffs and limited access to Canadian softwood, furthering the shortage. Low lumber supply has led to an increase in the prices of homes, making it hard for prospective first-time owners to make purchases due to the exorbitant prices.

Wooden pallets contribute to the shortage. Since the onset of the pandemic, consumer preference has shifted to durable goods like furniture and large appliances. The goods shipments come in wooden pallets made from lumber, causing a shortage.

The high prices are making homeownership dreams for first-time buyers unattainable. Many of the buyers are millennials who want to buy their first homes. Due to the high prices, very few millennials are homeowners; studies indicate that by mid-2020, 52% of the young adult population lived with their parents, surpassing the previous 48% high seen in 1940.

 

Milling Companies Are Unable To Satisfy Demand

The acute lumber shortage witnessed today can be traced to the housing boom of the mid-2000s when the bubble burst, the market for construction of new houses crashed due to oversupply. Many millers were driven out of business, leaving the industry understaffed for the surge in demand for lumber today.

The entry of COVID-19 put further strain on production as millers ceased production due to the health restrictions in place and the prediction of another housing bust. Contrary to the miller’s expectations, the market did not crash. Instead, demand for houses grew due to the low mortgage rates. Homeowners also want lumber to expand and renovate their homes pushing the prices of lumber to an all-time high. According to The National Association of Realtors (NAR), you will fork out an additional $24,000  for a new home due to the rise of lumber prices.

 

Government Intervention

NAHB, the homebuilders association, is calling for government help. In a letter penned to the commerce department, they want the Biden administration to address the shortage and the rising price of lumber. The letter highlights the importance of the housing and construction industry to the US economy. In part, the letter reads that the industry builds “1,000 average single-family homes, creates 2900 full-time jobs and generates $110.96 million in taxes and fees for all levels of government to support police, firefighters, and schools”.

 

The Bottom Line

The dip in the supply of lumber has led to the high prices of houses, but many industry executives expect things to pick up eventually. They hope that in a year or two, production will match the demand for lumber. Mortgage rates stability will help to lower the prices of houses.

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Posted in: Real Estate Tips