Thirty-six thousand dollars.
That’s the increase in the price of an average new construction home simply because the price of lumber is so high right now — and these high price points are complicating the already hot housing market. Simply put, there’s demand for new homes right now, but a shortage of lumber. And part of this demand is fueled by the fact that real estate is such a seller’s market right now.
Quality homes are selling for far more than the asking price. It’s causing a real conundrum for people interested in moving or that have to move for one reason or another: Do you eat the price of lumber and build a new home or do you overpay for an existing home on the market?
Why Are Lumber Prices So High?
So just why are lumber prices so high right now? It’s largely because sawmills throughout the country paused their operations when the pandemic began in March 2020. This was done strategically, as many prepared for the home building market to slow down in the wake of the pandemic-induced recession. There were also health concerns involved with keeping sawmills open.
Instead, the slump never occurred and now there’s a shortage of lumber to build new homes and renovate existing ones. Being that lumber is the single-most substantial product that home builders purchase for these purposes, it’s really causing an issue.
When Will Lumber Prices Fall?
Based on the basic principles of supply and demand, it’s reasonable to think that the cost of lumber will begin to decrease when the housing market cools off. Right now, there’s simply more demand for new housing than there is available lumber to build it. That’s the main factor behind the price surge.
It’s also possible that supply will catch up with demand, but when this will occur is anybody’s guess. Some economists predict that it could still be 18 months before the price of lumber decreases to a reasonable cost.
One other thing to keep an eye on is tariffs on lumber imported from Canada. You might recall how the Trump Administration imposed a 24 percent tariff on lumber from Canada in 2017, then slashed those tariffs down to 9 percent in 2020. Now, the building industry is calling on President Joe Biden to at least temporarily remove the remaining 9 percent tariff to help control costs. At the time of this writing, the White House has yet to tip its hand on whether or not it will be taking any action to help ease accelerating costs.
The bottom line is that there’s demand for new housing in the United States and this is coupled with a housing shortage in this country. Considering that about 90 percent of new homes are made of wood, and 20 percent of a new home’s cost is lumber, this is a significant issue that could slow economic growth and add to the housing sector’s troubles.
