Lumber Prices Sank in June. Here's Why That's a Good Thing
by Maurie Backman | Published on July 8, 2021
A decline in lumber costs could make newly built homes less expensive.
In a typical housing market, it's common for new construction homes to cost more than homes that already exist. After all, you'll generally pay a premium to live in a home with new fixtures and appliances and one that no one has lived in before.
But this year, the cost of new construction has soared, and the price of lumber has a lot to do with it. Lumber has been in short supply throughout the pandemic, and so its cost has risen tremendously as the demand for it has gone up.
But that trend reversed in June. In fact, last month, lumber prices declined more than 40%, representing their largest monthly drop on record.
Why is lumber down?
During the pandemic, many people took advantage of being stuck at home and embarked on renovation projects at the same time supply chain issues made lumber more difficult to come by. That uptick in demand drove the cost of lumber up.
But now, people aren't spending as much time at home. With things improving on the pandemic front, people are back to leaving the house and going on vacations, which means they're taking on fewer home improvement projects. And with lumber demand waning, it's becoming more affordable.
To be clear, that's a good thing for anyone in the market for a newly built home. Earlier this year, the average cost of new construction rose around $36,000 largely due to inflated lumber costs. Now that prices are coming down, builders won't have to pass those inflated costs onto buyers.
How to capitalize on lower lumber costs
Now that lumber costs are starting to drop, you may be in a stronger position to afford a newly built home. If that's something that interests you, do a review of your finances to see if you're a solid mortgage candidate. Since new construction is generally more expensive than buying an existing home -- even with lower lumber prices -- you'll want to snag the lowest interest rate on your mortgage as you can.
It's a good idea to check your credit report before applying for a mortgage to make sure there aren't any red flags. You should also check your actual credit score, because if it's in the mid-700s or higher, you're more likely to qualify for the lowest mortgage rates out there. And if it's not, you'll know to work on boosting it.
Another way to take advantage of lower lumber costs is to tackle those home improvements you've been putting off. If you need to replace your deck or build one from scratch, now could be a good time.
Has the lumber bubble finally burst?
Lumber won't necessarily continue to plunge at the same level it did in June. But are prices likely to reach record highs again? Probably not anytime soon.
Now that supply is opening up, the cost of lumber may hold steady or even drop further during the second half of the year. That may be bad news for those who invest in the commodity directly, but it's great news for builders, home buyers, and property owners alike.
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