Increase to Building Costs

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The housing supply is limited and one attributing factor is the increasing building costs affecting new construction. Currently, lumber prices are at a record setting high which has caused a hurdle in the construction industry. Contractors are reporting that prices have risen 377% since the spring of 2020, severely decreasing their profitability and margins, and the lack of accessibility has caused construction delays as well as fewer projects. Home renovations, specifically decks, fences, and wooden stairs are all impacted by this as well.

Covid-19 has undoubtedly played a part allowing some homeowners to increase their savings and take advantage of historically low mortgage rates. But it also caused labor shortages in the lumber industry which decreased the supply even more from 2017 when tariffs were raised on Canadian lumber.

Marcus Lu, author of Visualizing the Recent Explosion in Lumber Prices puts this all into perspective by comparing the number of average single-family homes with $50,000 worth of lumber. On May 4, 2020 it cost $343 for 1,000 board feet (bd ft). 145.77 bd ft ($50,000/$343) was enough to frame 10 1/20units. A year later on May 5, 2021 1,000 bd ft of lumber cost $1,635. $50,000 was only able to buy 30.58 bd ft which builds 2 1/10 units. The National Association of Home Builders (NAHB) says it costs $36,000 more than it did last year to build a home based on the expansive increases in lumber costs alone.

Sawmills are expected to be playing catch up in the U.S. throughout 2021. The NAHB has requested the current administration to temporarily pause the 9% tax on Canadian lumber in hopes to aid the supply against the aggressive demand. Lu states, “Analysts are now warning that lumber prices could reach a flashpoint, where affordability becomes so limited that demand suddenly falls off.” If the demand falls off, where will that leave the suppliers? The suppliers are doing the best they can with support from the NAHB so that construction can continue in our growing society. Please don’t hesitate to reach out to us with any questions concerning the lumber shortage impacts on today’s real estate market.

Read Lu’s full article here: