Advertiser Disclosure

advertising disclaimer
Skip to main content
ladder with lumber

Lumber Issues Whack at Housing Starts, Affordability

Feb 26, 2021 by Marc Rapport
Get our 43-Page Guide to Real Estate Investing Today!

Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

*By submitting your email you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

Record-high lumber prices are jacking up the price of new construction, sparking concerns about affordability and even demands for accountability by the nation’s largest residential housing trade group.

The National Association of Home Builders (NAHB) says lumber prices have risen by more than 170% in the past 10 months and hit a record high this month. It points to price and supply issues as hindering what had been a bright spot in a pandemic-hammered economy, eating not only into builders’ profit margins, but also their ability to source what they need to get the job done, as well as pricing new homes out of reach for many potential buyers at a time when housing inventory already is at record lows.

One prominent builder, NAHB second vice chair Alicia Huey of Birmingham, Alabama, says the same lumber-framing package that cost her $35,000 last year at this time now costs $71,000. "This increase has definitely hurt my business," says the builder of high-end custom homes. "I’ve had to absorb much of this added cost and even put some construction on hold because I would be losing money by moving forward."

The problems persist even after the lumber is bought, the NAHB says. "Appraisers are not taking rising lumber costs into account, which is disrupting home sales and preventing closings," says Carl Harris, a custom builder in Wichita, Kansas, who’s serving as the NAHB’s third vice chairman.

The NAHB is calling for President Joe Biden, Congress, and the Commerce Department to urge suppliers to ramp up domestic production and to end tariffs on Canadian lumber.

"Clearly these price increases are unsustainable, particularly in light of a continued housing affordability crisis," says Tampa builder Chuck Fowke, the current NAHB chairman. "Given this ongoing period of high demand, the Commerce Department should be investigating why output from lumber producers and lumber mills are at such low levels."

Starts are down but permits are up

Lumber issues were fingered for softness in housing starts and completions that showed up in January’s monthly report from the U.S. Department of Housing and Urban Development (HUD) and the Commerce Department.

Privately owned housing starts were at a seasonally adjusted annual rate of 1,580,000, down 6% from December and 2.3% from January 2020, the report said. Of those, 1,162,000 were single-family homes and the rest multifamily units.

Builders were still getting ready to build. Privately owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 1,881,000, up 10.4% from December and 22.5% from January 2020, the HUD/Census Bureau report says.

While that might look like optimism in action, the NAHB’s chief economist doesn’t see it that way. "It’s also worth noting that the number of single-family homes permitted but not started construction jumped to 114,000 units in January," Robert Dietz said in a Feb. 18 blog. "This is 9.6% higher than December and 28.1% higher than a year ago, as building material cost increases and delays slow some home building."

The Millionacres bottom line

Dietz says the housing starts report jibes with builder surveys that the NAHB says show concern over materials prices and availability, which will in turn add more pressure to housing affordability if mortgage rates rise in 2021.

The median sales price of new houses sold in December 2020 was $355,900, according to the most recent report on prices from the Census Bureau and HUD. The average sales price was $394,900. That’s a lot of money for a lot of people.

Lumber prices affect remodeling as well as new construction, so high prices for this essential commodity hit at the bottom line for both. Add to that now concerns about affordability. The higher prices go, the more potential buyers can be shut out of the market for that particular property.

Just goes to show that even in a boom market, there’s also some room for bust.

Got $1,000? The 10 Top Investments We’d Make Right Now

Our team of analysts agrees. These 10 real estate plays are the best ways to invest in real estate right now. By signing up to be a member of Real Estate Winners, you’ll get access to our 10 best ideas and new investment ideas every month.

Find out how you can get started with Real Estate Winners by clicking here.

The Motley Fool has a disclosure policy.