A contractor estimates a home under construction in Lehi, Utah, US, on Wednesday, December 16, 2020. Private residential construction in the US rose 2.7% in November.
George Frey | Bloomberg | Getty Images
Consumers want more newly built, affordable homes, but builders find that difficult to deliver, especially as the prices for wood framing are getting higher.
According to Random Length Lumber Futures for March, timber prices soared above $ 1,000 per 1,000 yards of plank on Thursday morning before falling back below that milestone. The high of $ 1,004.90 is double the price just three months ago and a record high.
Higher wood costs are likely to be the cause of a drop in housing early in January. The start of single-family homes, which are most needed, were down 12% from December, according to the US Census.
“Builders are reporting concerns about rising wood and other construction costs and delays in obtaining building materials,” wrote Robert Dietz, chief economist at the National Association of Home Builders. “Rising interest rates will also hurt housing affordability in 2021, as existing housing stocks remain low.”
Dietz also noted that the number of single-family homes allowed but not started in December was up 9.6% and was up 28% from a year earlier, as the cost of building materials rises and delays in building some homes .
Executives at some of the country’s largest public homebuilders have noted on revenue calls that they have slowed production, hoping to await some of these higher costs.
Unfortunately, it doesn’t look like costs are going down. Several factors should have taken the pressure off prices, but not so far.
Joe Sanderson, Director of Natural Resources at Domain Timber Advisors, points out these recent developments:
- Canadian timber tariff fell from 20% to 9% in December, making Canadian timber cheaper and more timber imported to the US
- Conditions in La Nina result in a dry weather pattern in much of the south. The drier than normal winter has led to additional logging capacity, which strengthens the wood supply.
- New sawmills have come online in recent months.
He added that wood producers are trying to hold on to yields and returns in the first quarter of the new year while demand is high. They therefore run at a higher capacity than normal to take advantage of these prices, which can lead to oversupply.
Strong demand for housing, low interest rates and a boom in home remodeling continue to drive prices up. At some point, the basic reality of affordability should slow growth at least somewhat.