A contractor frames a house under construction in Lehi, Utah, USA, on Wednesday, December 16, 2020. Private residential construction in the US rose by 2.7% in November.
George Frey | Bloomberg | Getty Images
Consumers want more newly built, affordable homes, but builders are finding it difficult to deliver, especially as prices for rising wood are still rising.
Wood prices rose more than $ 1,000 per 1,000 feet on Thursday morning before falling below the milestone again, according to Random Length Lumber Futures for March. The high of $ 1,004.90 is double the price of just three months ago and a record.
Higher timber costs are likely to be due to a decline in early January. The start of single-family homes, which are most in need, fell by 12% from December, according to the US census.
“Builders report concerns about increasing wood and other construction costs and delays in procuring building materials,” writes Robert Dietz, chief economist at the National Association of Home Builders. “Rising interest rates will also undermine the affordability of housing in 2021 as stock of existing homes remains low.”
Dietz also noted that the number of single-family homes that were allowed but not started increased by 9.6% in December and was 28% higher than a year earlier, as the cost of building materials increased and the delay of some houses built.
Managers of some of the largest public house builders in the country said on the calls that they had delayed production, hoping to anticipate these higher costs.
Unfortunately, the cost does not seem to be dropping. Several factors have had to reduce the pressure of prices, but so far not.
Joe Sanderson, Managing Director of Natural Resources at Domain Timber Advisors, points to recent developments:
- The Canadian timber tariff dropped from 20% to 9% in December, making Canadian timber cheaper and sending more timber imports to the US
- La Nina conditions lead to a dry weather pattern in much of the South. The drier winter than normal has led to additional felling capacity which strengthens timber stock.
- New wood factories have come online in recent months.
He added that in the first quarter of the new year, timber producers are trying to limit yields and yields while demand is strong. They are therefore working with a higher capacity than normal to take advantage of these prices, which could lead to an oversupply.
Strong household demand, low interest rates and a boom in home renovations keep prices higher. At some point, however, the basic reality of affordability must at least slow growth.