The huge increase in wood prices in the spring has caught the attention of homeowners, builders and contractors, and most equate these cost increases with the primary cost of shelter. While important, the price of lumber is not the primary driver of home prices. Don’t be fooled into assuming that new home prices will come down soon.
Since April 2005, RoMac Building Supply has made a Global Commodity Index available free of charge to builders and consumers that shows the delivered wholesale price of structural building materials to build a 2,000 square foot home in downtown Montreal. Florida.
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The index doesn’t include any decor, HVAC, electrical, plumbing, or labor, but it does factor in everything else inside and out to build this home . By doing wholesale prices, it gives the builder a real view of what the prices will be over the next 30-45 days.
The mid-May index was very surprising and revealing. Lumber prices from April to May fell an average of about 20 percent, but the index actually rose 1.4 percent to a new high. How could it be?
Increases in foundation mesh, drywall, roofing, doors, windows and siding such as OSB and CDX plywood offset increases in lumber prices. The building materials supply chain is in shambles as demand exceeds production, and anything made with metal is scarce and its price is rising every month.
Three years of trade wars and growing demand in huge, populous regions like China and India have created a situation where America is no longer the world’s largest trading partner. In addition, sea freight rates have doubled and tripled in price with significant delays.
To better assess the dramatic increase in the price of a home since the start of this pandemic last year, consider these two numbers – since June 2020, a year ago, this index has increased by 63.9% and since on January 1 of this year, the increase is 25.1 percent.
Now consider that land prices are skyrocketing every day as builders and consumers search for land to build on, and labor costs are rising dramatically as the country has an aging workforce and not enough immigration. There is a huge shortage of skilled labor. On top of that, there are shortages of electrical wires and plumbing parts with much higher prices crippling these scopes of work. In short, it’s a mess.
The other factor that needs to be taken into account is that the drop in lumber prices is mainly due to a slowdown in demand from Big Box retailers as much of the country goes on vacation after enduring 15 months of the pandemic. , but there is a tsunami of housing starts. scheduled for the third and fourth quarters of this year.
A recent Wall Street Journal article using data from the National Realtor Association suggests the country needs 5.5 million new homes, which would equate to 2.4 million housing starts over 5 years. Over the past decade, the country has not built enough homes compared to historical levels, and the housing market over the past decade has averaged less than 1.4 million homes per year.
This demand for housing, if true, will overwhelm the supply chain for some time, as companies have limited capacities to increase production and obtain raw materials. Expect lumber prices to be volatile and rebound, and don’t expect prices at pre-pandemic levels.
Don’t be fooled by falling lumber prices. All other costs, including government regulations and licensing costs, are skyrocketing. With most locations in Florida having less than a month of home inventory, expect availability to remain limited and prices to rise.
Here’s the caveat that could make matters worse – a bad hurricane season. In next week’s column, I will detail the huge problems associated with if the country is hit by a major hurricane.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of “Around the House” which can be seen on AroundtheHouse.TV.