Prices of new houses are rising, and a big part of the reason is literally structural.
Lumber has quadrupled in price in the past year, forcing builders to repeatedly reprice their houses to keep up with the cost of building materials. John Eilermann Jr., chief executive of McBride Homes, estimates that lumber added $26,000 to the price of a typical home built by his company last year.
“In my 35 years in the business I’ve never even seen prices double in such a short time,” Eilermann said. “This is unprecedented.”
He said McBride has been raising house prices once or twice a month, much more frequently than usual. Buyers haven’t balked so far.
Strong demand for both houses and home remodeling is helping drive lumber prices up, but there are supply-side factors too. Imports from Canada are down because of U.S. tariffs and a beetle infestation in British Columbia. Western wildfires have hurt production too.
Much of the supply shortfall, though, can be blamed on COVID-19. In the early weeks of the pandemic, shutdowns and new safety protocols hampered production.
Dustin Jalbert, a lumber analyst at data firm Fastmarkets, thinks the industry also misread the pandemic’s effect on demand.
“Sawmills and panel mills curtailed aggressively last April and May,” he said. “Everyone assumed housing was going to tank, but the drop in demand never happened and they have been playing catch-up ever since.”
Ken Kruse, president of Payne Family Homes, said the price surge has cut into profits. “We’ve been doing our best to keep up with the cost increases, though often between the time we start and complete the house, lumber costs have gone up more than we anticipated,” he explained.
The volatility is even more challenging for smaller companies. “It hurts us when we have already bid the project,” said Cindy Roeser, co-owner of Roeser Home Remodeling in Kirkwood. “When prices go up, we can’t go back to our clients and ask for more. A lot of them have gotten home equity loans to pay for it.”
Lumber has raised the cost of a room addition at least 50% this year, Roeser said, and has kept the firm’s estimators on their toes. “We used to be able to go off of projects we had done in the past, but you can’t do that any more because pricing changes so quickly,” she said.
Zach Mansker, a sales representative at wholesaler Forest Products Supply in Rock Hill, is selling oriented-strand waferboard, a manufactured product used in roofing, to retailers for around $50 a sheet, up from $10 before the pandemic. Almost every wood product, from 2x4 studs to plywood, has at least doubled or tripled.
The increases have been relentless, he said: “There are times when it jumps 10% to 20% in 10 days, and it has happened week after week for a year now.”
From where Mansker sits as a middleman, he sees builders desperate to get product and manufacturers unable to keep up with demand. He thinks higher prices are here to stay.
Jalbert agrees. He thinks prices might ease this fall or winter, but not by much. “I don’t think current levels will last, but prices will remain high going into 2022 and maybe even 2023,” he said.
The only thing that would bring back pre-pandemic lumber prices, Jalbert said, would be a dramatic drop in demand for housing. With mortgage rates low and COVID-weary Americans eager to upgrade their living space, that’s probably not in the cards.