Pandemic messed with supply & demand
The National Association of Home Builders estimates lumber prices have increased 200% in the past 12 months, raising the average price of a new single-family home by $24,000. And apparently it’s a simple case for now of supply and demand, as the coronavirus caused mills to slow-down, reducing the supply of needed wood products.
A recent article in the Jacksonville Daily Record quoted a home builder who said the price of a 4-by-8 wood panel went from $10 a sheet last summer to around $55 now. It’s one of the most common components used in building a new home. As a result, many builders report they are hesitant to sell a new home on speculation, choosing instead to build it out through the wood cabinetry, in order to gauge accurate costs and thus an adequate selling price.
The increase in lumber prices are coming at a time when the new home market has become super-heated. New home sales in the U.S. surged 20.7% in March to a seasonally adjusted annual rate of 1.02 million homes. That’s the fastest pace since August of 2006. Sales rose 40.2% in the South, 30.7% in the Midwest, and 20% in the Northeast. But in the West, they fell by 30%, due to bad winter weather. The popularity of new homes is in part due to the scarcity of existing homes for sale, which fell for a second consecutive month in March. That led to higher prices for existing homes, while the price of new homes has been stable – the median sales price nationally is up only 0.8% from a year ago.
Economists don’t expect the housing supply to meet the demand for quite some time. An analysis by Freddie Mac estimates the country is 3.8 million single-family homes short of demand. It’s part of a growing housing shortage trend that began to be quantified about three years ago. The shortage is especially acute for entry-level homes, which makes it more expensive for first-time home buyers to enter the market, according to Freddie Mac.
LMA Newsletter of 5-3-21