There are a lot of factors that affect the strength of the housing market. Some, like interest rates, are fairly straightforward. Others are a little less obvious. Lumber, for example, might not be the first thing you consider when you think of home buying – and yet it’s an undeniable part of the process. So how exactly does the price of lumber affect the housing market? And what can we expect in the near future?
In the years directly preceding the start of the pandemic, the price of lumber varied roughly between $300 to $500 per thousand board feet (the standard measurement for lumber volume). Once COVID took hold worldwide in spring of 2020, that price began to skyrocket. Why? For one thing, supplies decreased because many lumber mills were forced to suspend production in an effort to keep their employees safe from infection. At the same time, the demand for lumber grew as people sought to keep themselves busy during quarantine by taking on more home building projects. And pandemic-induced inflation raised the cost of available materials even more.
As a result, The National Association of Home Builders (NAHB) reported that at the height of lumber price increases in 2021, the average cost per thousand board feet was $1,500 – an increase of over 300%, compared to pre-pandemic prices. Not surprisingly, this translated into an uptick of close to $20,000 in average building costs for new-construction, single-family homes (and, consequently, a higher price tag on the finished product). Home renovation and improvement costs also rose as a result of lumber price increases, so sellers who may have been planning to put their homes on the market after making necessary repairs held off on those fixes (and, by extension, on their home sales). The result: less inventory and steeper prices.
The reset – and what’s next
Lumber prices have started steadily dropping again in the last year. Part of the reason for the decrease is that the world is beginning to function “normally” again; lumber mills are back in operation and DIYers have returned to work, with less time on their hands to buy wood for home renovations. Presumably that should translate to a more affordable market, since new houses are cheaper and more readily available, right?
Not exactly. While lumber prices have dropped, mortgage rates have steadily increased over the course of the year. In fact, they’re more than twice what they were at this time last year – and they might continue to rise. Not surprisingly, the prospect of having to pay twice as much for a mortgage has led some prospective buyers to put the brakes on their house hunting plans – which in turn has contributed to lower lumber prices, since buyer demand has slowed.
Most experts predict that lumber costs will stabilize over the next year or so. But the outlook isn’t quite as clear regarding interest rates and inflation, which are integral considerations in any buyer’s home purchase plan. So while a low lumber price may allow builders to ramp up their construction plans, it doesn’t necessarily guarantee increased affordability.
If the past several years have taught us anything, it’s that the housing market can be unpredictable. And while the price of lumber has a tangible impact on home costs, it’s just one of many factors that can contribute to whether or not a market is buyer friendly. If you’re looking for a home, your best bet is to contact an experienced real estate agent, who can guide you through the process and all of its variables.