Home builders

Homebuilders wait for lower lumber prices

After months of headlines about rising lumber costs, recent news has focused on significant price declines. The problem for homebuilders and renovators is that although lumber futures have begun to moderate, lumber lots quoted to builders have remained at or near record highs.

What’s going on with wood costs?

The recent decline in lumber prices began in May, with July lumber futures falling more than 50% since peaking on May 10, according to lumber industry prices and information service . Random lengths. The news media generally use futures contracts as an approximation of prices paid by homebuilders and others. But while lumber futures fell between mid-May and early July, prices paid by builders fell only a fraction. Disconnection is inherent in the timber supply chain.

The role of economics in timber prices

In economic jargon, the “street” prices paid by builders are “sticky”. This phenomenon is largely the result of dealer inventory carrying costs and potentially large differences between the price at which inventory is bought and sold.

Retailers and wholesalers do their best to buy low and sell high. At the very least, they try to avoid buying high and selling low – their biggest risk when prices fall rapidly. A supplier that quotes its customers at current market prices will lose money, or earn less money, when prices go down.

Unlike the dynamics of a falling price environment, there is a much shorter time frame for higher lumber prices to reach builders when market prices rise. Participants in the lumber supply chain have an incentive to maximize their profit margins when prices rise and to avoid absorbing losses when prices begin to fall.


RELATED


New home prices are crowding out low-income households

The median price of single-family homes built for sale started in 2020 was $336,000, according to NAHB analysis of recent data from the Department of Housing and Urban Development and Census Bureau Building Survey. A large majority (79%) of new single-family homes cost between $250,000 and $1 million; virtually none were under $150,000; absolutely zero was less than $100,000; and only 1% had a price between $100,000 and $150,000.

Photo: Lightfield Studios / stock.adobe.com

These prices contrast sharply with buyers’ expectations. The 2021 edition of NAHB’s “What Home Buyers Really Want” (based on a sample of 3,247 recent and potential buyers in a survey conducted during the summer of 2020), notes that the median price that buyers expect to pay for a house is around $265,000. Half plan to pay between $250,000 and $1 million and a quarter hope to pay less than $150,000. The gap between actual new home prices and consumer expectations illustrates how bottom quartile buyers have been squeezed out of the new construction market.

ABOUT NAHB: The National Association of Home Builders is a trade association based in Washington, DC, representing more than 140,000 members involved in home building, remodeling, multifamily construction, property management, contracting, design, housing finance, manufacturing of building products and other aspects. residential and light commercial construction. To learn more, visit nahb.org.