Lumber and The Housing Market

There is no denying that it is a seller’s market. If you are a homeowner, you are likely fielding cold calls from companies offering cash for your home at least once a week, and if you are searching for a home to buy, you know that even the humblest of homes are being sold sometimes within hours of being placed on the market.

Due to how competitive the market is this year; potential buyers are turning to new construction in record numbers. But due to the lumber shortage, those buyers are looking at an average of $36,000 extra cost for a single-family home and an added $13,000 to the market value of a new multifamily home. About 1 in 4 homes for sale are newly build, the highest share on record. Historically, new homes make up around 1 in 10 of houses on the market. Lumber prices are setting new records daily, up 340% from a year ago according to wood products industry tracking firms.

The skyrocketing prices can be blames on various factors beyond simple high demand. Lumber tariffs caused the prices to rise over a year ago, but with the pandemic shutdowns, production came to a halt as well. Just as what has happened in the chip manufacturing industry, the wood industry saw extreme missteps in projected needs. The expectation was that the housing demand would remain at a stand-still for a long time. In fact, the reverse occurred. After a very brief pause in home purchases, demand came back with a boom. Homebuilders and lumber producers were caught off guard and the catch-up game has been challenged by the tariffs and lack of domestic supply. Until the industry can reach its full production potential, the shortage will persist and the difficulty in finding a home to buy will continue for the foreseeable future.