Home Construction

Soaring Lumber Prices Add $36,000 to the Cost of a New Home, and a Fierce Land Grab is Only Making it Worse

According to CNBC.com, April 30, 2021, as the housing market gets leaner, potential buyers are turning in record numbers to new construction, but several factors are making those homes pricier than ever before. First is a major shift in the market’s composition due to the record shortage of existing homes available. One in four homes for sale are now newly built, the highest share ever. Historically new homes make up about one in 10, but fierce buyer competition is behind that shift. Prices for both new and existing homes are now at record highs. But it is not just competition fueling new home prices, it is the cost of what goes into the home. Material and land prices are surging. Lumber prices seem to set a new record almost daily, now up 67% since the start of this year and up 340% from a year ago, according to Random Lengths, a wood products industry tracking firm. The surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home, according to the NAHB. Some builders have said they are slowing production in the face of exorbitant costs, but single-family housing starts were up 41% in March 2021 year-over-year, according to the U.S. Census. But it’s not just lumber. Gypsum, which is drywall, prices are up nearly 7% from a year ago. Steel mill product prices are at a new record high, up nearly 18% in March year-over-year. This is beams, sheet metal products and wiring. The price of copper also set a new record high this month. It is now up 27% year-to-date. And then there is land. The price per single lot is up 11% so far this year compared with the same period last year, because demand is so high and supply is low. New lot supply is down 20% from a year ago, according to a real estate data and advisory firm. The inventory is tightest in San Diego, Baltimore, and San Francisco. Nashville is also now seeing one of the biggest drops in supply. Lot supply in 90% of the top markets are currently considered significantly undersupplied.

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