A contractor frames a house under construction in Lehi, Utah, USA, on Wednesday, December 16, 2020. Private residential construction in the US increased 2.7% in November.
George Frey | Bloomberg | Getty Images
Consumers want more newly built and affordable homes, but builders find it hard to deliver them, mostly because wood framing prices are rising more and more.
Timber prices topped $ 1,000 per 1,000 feet of board Thursday morning before falling below that milestone, according to March’s Random Length Lumber Futures. The $ 1,004.90 maximum is double the price just three months ago and a record.
Wood costs are likely to be higher following a fall in home starts in January. Home starts, which are most desperately needed, fell 12 percent as of December, according to the U.S. Census.
“Builders report concerns about rising timber and other construction costs and delays in obtaining construction materials,” wrote Robert Dietz, chief economist at the National Association of Home Builders . “Rising interest rates will also erode the purchasing power of housing in 2021, as existing home inventories remain low.”
Dietz also noted that the number of single-family homes allowed but not started jumped 9.6% in December and was 28% higher than the previous year, as construction material costs and delays slow down some constructions.
Executives from some of the country’s largest public housing builders have pointed out in earnings calls that they have slowed production, hoping to expect some of those higher costs.
Unfortunately, costs don’t seem to go down. Several factors should have removed the price pressure, but so far no.
Joe Sanderson, CEO of Natural Resources at Domain Timber Advisors, points out these recent developments:
- The Canadian timber tariff fell from 20% to 9% in December, making Canadian timber cheaper and sending more timber imports to the US
- The conditions of the Doll give rise to a dry climate in much of the south. The drier-than-normal winter has led to additional forest capacity that strengthens the timber supply.
- In recent months, new timber factories have gone online.
He added that timber producers are trying to block yields and yields in the first quarter of the new year, while demand is strong. Therefore, they operate at a higher than normal capacity to take advantage of these prices, which can lead to oversupply.
Strong housing demand, low interest rates and the housing remodeling boom continue to drive up prices. However, at some point, the basic reality of affordability should slow down at least some of the growth.