Lumber Costs Are High And Getting Higher.
It is no surprise that the recent pandemic has thrown many aspects of the US economy out of whack— and the lumber industry is no exception. But as these prices climb, where does this leave the real estate market and real estate investors, in particular?
Where it all Started
Early last year the pandemic brought the economy to a screeching halt. Amidst the turmoil, the housing market moved to a temporary standstill. When home-buying finally resumed, families flocked the housing market, seeking more space in the suburbs and fleeing cities. This in turn triggered a sharp increase in home building—a 12% jump in the past year according to MarketWatch. This building craze created greater demand for building supplies—most pointedly, lumber.
How Bad Is it?
The National Association of Home Builders (NAHB) reports that over the last 12 months the average price of a new single-family home has risen by about $35,872, based on the prices of softwood lumber typically used in these builds. Estimates of the fully phased-in cost translates to a 184% increase in single-family builders’ lumber costs. Yikes.
Rising Demand
But while supply costs are rising, so is demand. Untethered from corporate offices, many people are taking the opportunity to pull up stakes and move. In fact, figures from the U.S. Census Bureau show April 2021 housing starts running 67% above April 2020 levels. Wow. Homebuyers are clamoring for inventory with Realtor.com predicting a seven percent increase in overall home sales in 2021.
What This Mean for Investors
Ultimately, it comes down to the numbers. Investors will be wise to pay close attention to the unpredictability of supply costs and plan accordingly. That may mean increasing your contingency reserve so that there is money in the budget to cover unforeseen expenses. NavCap’s free Scope of Work template can set you on the right track when it comes to line item budgeting. Download it for free here.