Housing Market: Building Material Shortages Still Dog the Construction Industry

Real Estate News: Real Estate Investing Podcast

The high cost of lumber has challenged the construction industry this past year, but there may be some relief in sight. Prices have been pulling back a bit, but how far will they go? Industry experts are expecting a building boom, and that could put more pressure on the price of lumber and other materials in short supply, like paint.

As reported by CNBC, lumber futures have been pulling back in the last month, after a huge surge during the pandemic. (1) For July deliveries, they were down more than 5% to $1,158 per thousand board feet. That’s off about 30% from a record high of $1,711 on May 10th.

Lumber Prices Off Their Record High

But even with that pullback, lumber prices have risen more than 200% in the last year. And that’s adding about $36,000 to the average price of a home, according to a recent report. (2)

One lumber industry insider told CNBC that it might make sense to hold off a bit on a project if you can, because of high wood costs. Kyle Little of Sherwood Lumber says: “We do see some relief over the next six to 12 months.” But he says “at prices that are much, much higher than prices we’ve experienced in the recent past.” Sherwood Lumber is a private distribution company based in New York.

Little believes that lumber prices came down a bit because some builders were putting off projects. Single-family starts were down 13% in April compared to March. CNBC reports that about 15% of the builders were pouring foundations but had postponed the framing of the homes. (3) An official home start must include both the foundation and the framing.

A monthly survey by the National Home Builders Association supports that idea. Builders said in the survey that they were slowing production to help deal with higher prices for lumber and other materials like steel, copper, and paint.

Paint in Short Supply

Paint shortages are being blamed on the pandemic, as well as the winter storm in Texas last February. A spokesperson for Sherwin-Williams told Realtor.com: “In a supply chain already challenged by COVID-19, the February natural disaster in Texas further impacted the complex petrochemical network, causing significant disruptions.” He says: Recovery has been significant in recent weeks and is improving -- but is still far from complete.”

The blog says that builders are on waiting lists for paint, and that prices will likely run higher until the shortages are resolved. Paint manufacturers expect increases between 6 and 40%.

New Building Boom Expected

The owner and publisher of Madison’s Lumber Report, Keta Kosman, told the Lesprom Network that she expects a new building boom, similar to one in the 1950s. (4) In addition to the surging demand for homes, the U.S. administration wants to act on a huge infrastructure plan. Those projects will use many different materials, including a lot of wood.

She says higher home prices have as much to do with demand as anything else. She says smaller builders may have pulled back because of lumber prices, but the larger builders just raised their home prices. If the homes are pre-sold, builders are now adding clauses to the contract to cover the rising cost of lumber.

When asked if we can expect lumber prices to stop rising, Kosman said: “That’s very hard to know. The price of lumber can’t go up forever.” She says: “Previously, the normal was $300 per thousand board feet. We are never going back to those levels again.” As for the lumber supply, she says that sawmills have only so much capacity, and it takes two years to build a new mill.

The U.S. also imports about 40% of its lumber, according to Kosman, and there’s constraint in that supply line as well. She says the latest report for Canada’s sawmill capacity is from February, and that’s showing below normal levels.

The takeaway from Kosman’s interview is that lumber prices may come down some more, but don’t hold your breath for a return to pre-pandemic levels. She expects another “15 years of robust building” and a new bottom for lumber prices. We’ll just have to wait to see where they land.

The National Association of Home Builders would like more to be done to improve the lumber cost situation. NAHB Chairman Chuck Fowke said in a statement: “These lumber price hikes are clearly unsustainable. Policymakers need to examine the lumber supply chain, identify the causes for high prices and supply constraints and seek immediate remedies that will increase production.”

If you’d like to read more about this, you’ll find links in the show notes at NewsForInvestors.com

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Links:

1 - https://www.cnbc.com/2021/06/08/lumber-executive-sees-further-relief-in-sky-high-prices-.html?recirc=taboolainternal

2 - https://www.businessinsider.com/lumber-expensive-increases-price-new-homes-national-association-home-builders-2021-5#:~:text=Expensive%20lumber%20costs%20have%20added,a%20new%20home%2C%20report%20finds&text=Expensive%20lumber%20has%20added%20to,price%20of%20a%20new%20home

3 - https://www.cnbc.com/2021/05/18/home-construction-sees-biggest-drop-since-pandemic-hit-heres-why.html

4 - https://magazine.realtor/daily-news/2021/06/07/paint-shortage-adds-to-construction-remodeling-woes

5 - https://www.lesprom.com/en/news/There_will_be_new_bottom_lumber_price_and_15_years_of_very_robust_building_99039/