U.S. homebuilders are poised to benefit this year amid strong demand, low mortgage rates and an all-time low inventory of previously occupied homes for sale. But soaring lumber prices and a shortage of material could limit their ability to capitalize on the strong housing market trends.
"Historically bad. They’ve [lumber prices] never been this high," CEO of the National Association of Home Builders Jerry Howard told FOX Television Stations Wednesday. "Right now, lumber prices are up over $1,400 per thousand board feet."
According to the association, lumber prices have tripled over the past 12 months. That caused the price of an average new single-family home to increase by $35,872.
While the prices of lumber, cement and other construction materials fluctuate constantly, the volatility has worsened over the past year as the coronavirus pandemic led to factory closures, a shortage of truckers and other logistical issues that have made the normally smooth supply chain unpredictable.
But some industry insiders aren’t ready to blame the lumber crisis solely on the COVID-19 pandemic and its impact on the economy.
"We’ve talked to everybody in the supply chain from the loggers all the way through the lumber dealers," Howard continued. "And everybody is pointing the finger at everyone else. Right now it looks like it’s at the sawmill level where they’re just not producing enough finished lumber."
Howard said he has reached out to several sawmill companies to gain insight on the reason for slowed production but hasn’t been given an answer.
"We’ve reached out to everybody and their brother," he said. "So far, our pleas have fallen on deaf ears."
Howard said the high prices put prospective buyers looking to build homes in a precarious position because the cost of lumber could increase while a home is under construction and buyers may not be able to foot the inflated cost.
High prices are also making it hard for home builders to sell new homes.
"Because these increased costs are not recognized during the appraisal process, the builder or home buyer is often left scrambling to secure extra funds to cover the difference between the appraised value and the actual cost of the home," NAHB said in a statement.
"It’s impacting us at our own business levels and our own business models. It’s impacting our customers, and it’s impacting our financial system," Howard added.
A recent study showed more people are looking to build new homes during the pandemic.
According to NAHB, 16% of adults are planning to buy a home in the next 12 months. Of that, 42% are looking to buy a newly built home. In the first quarter of 2020, only 24% of buyers reported a preference for new homes.
Several market trends are driving strong demand for homeownership. Mortgage rates remain at historic lows. Americans forced to work from home in the pandemic are seeking larger homes. And more millennials are entering the market.
The housing market mounted a strong comeback last summer after declining sharply in the spring when the coronavirus outbreak hit. Sales of previously occupied U.S. homes surged last year to the highest level since 2006 at the height of the housing boom, according to the National Association of Realtors.
Howard said he believes lumber prices could come down but Washington would need to intervene. In the meantime, he tells prospective buyers to talk to their builders about the price of lumber and understand the potential price range of the material during construction.
The Associated Press contributed to this report. This story was reported from Los Angeles.