When COVID hit, things got crazy across every industry. We don’t need to list everything that happened because the list is too long. But one downstream effect of COVID that affects all of us in the real estate industry is the soaring price of lumber. Let’s explore what happened.
Sawmills shut down lumber production to brace for a housing slump…
The slump never arrived…
As a result of the shortage, lumber futures hit a record high of $1,700, which is about a sevenfold gain from the low in early April 2020. That's a big deal because lumber is the most substantial supply that home builders buy.
"I've never seen anything quite like this," said Brant Chesson, the president and CEO of Homes By Dickerson, a Raleigh, North Carolina-based home builder. Chesson said his company would love to build more homes to meet surging demand but currently it can't find the materials, or labor, to do so. "It's absolutely contributing to a shortage of housing," he said.
Surging lumber prices alone have pushed the price of an average new single-family home $35,872 higher, according to an analysis by the National Association of Home Builders. The median sale price of existing homes surged by a record 17.2% in March to $329,100 — the highest since the National Association of Realtors began tracking prices in 1999. Despite this, demand for homes is still surging.
"This can only last for so long before affordability becomes pinched and demand pauses," John Lovallo, lead home builders analyst at Bank of America, said in an email.
Home builders and buys are not the only ones being effected. Renters are also paying the price. The NAHB estimates that the lumber price spike has added nearly $12,000 to the market value of an average newly built multifamily home — translating to households paying an extra $119 per month to rent a new apartment.
This will all come to an end but when that will happen and the ultimate price will be unknown. "We have a housing shortage in America. The way to relieve that shortage is to build more homes," said NAR's Yun. "The housing market has created haves and have-nots. Home builders are smiling big, but first-time buyers are very demoralized."