A contractor builds a house under construction in Lehi, Utah, USA, on Wednesday, December 16, 2020. Private residential construction in the U.S. increased 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 framed timber prices are rising.
Timber prices rose above $ 1,000 per 1,000 feet of board on Thursday morning, before falling again below that mark, according to Random Length Lumber Futures for March. The $ 1,004.90 rise is double the price of just three months ago and a record high.
Higher timber costs are likely to be behind the drop at the start of housing in January. The number of single-family homes, which are the most desperately needed, has dropped 12% from December, according to the US Census.
“Builders report concerns about increased lumber and other construction costs and delays in obtaining construction materials,” wrote Robert Dietz, chief economist at the National Association of Home Builders. “The increase in interest rates will also affect the accessibility of housing in 2021, as stocks of existing housing remain low.”
Dietz also noted that the number of single-family homes allowed, but not started, increased 9.6% in December and was 28% higher than the previous year, as the cost of construction material increases and delays reduce the construction of some houses.
Executives from some of the country’s largest public construction companies noted in appeals for profits that they slowed production, hoping to expect some of these higher costs.
Unfortunately, it does not appear that costs are decreasing. Several factors should have eased the pressure on prices, but not so far.
Joe Sanderson, managing director of natural resources at Domain Timber Advisors, points to these recent developments:
- Canadian sawn timber tariff fell from 20% in December to 9%, making Canadian wood cheaper and sending more timber imports to the US
- La Niña conditions are resulting in a dry climate pattern across much of the south. The drier than normal winter has led to additional harvesting capacity, which increases the supply of wood.
- New lumber companies have come into operation in recent months.
He added that wood producers are trying to curb income and returns in the first quarter of the new year, while demand is strong. They are therefore operating with a greater than normal capacity to take advantage of these prices, which can lead to an oversupply.
Strong demand for housing, low interest rates and a boom in home renovations continue to push prices up. At some point, however, the basic reality of accessibility must at least slow down some of the growth.