Soaring lumber prices add $36,000 to the cost of a new home, and a fierce land grab is only making it worse

    asset management news magazine

    Stacks of lumber are offered for sale at a home center on April 05, 2021 in Chicago, Illinois.Scott Olson | Getty Images

    As the housing market gets leaner, potential buyers are turning in record numbers to new construction, but several factors are making those homes pricier than ever before.

    First is a major shift in the market’s composition due to the record shortage of existing homes available. One in four homes for sale are now newly built, the highest share ever. Historically new homes make up about one in 10, but fierce buyer competition is behind that shift. Prices for both new and existing homes are now at record highs.

    But it is not just competition fueling new home prices, it is the cost of what goes into the home. Material and land prices are surging.

    Lumber prices seem to set a new record almost daily, now up 67% since the start of this year and up 340% from a year ago, according to Random Lengths, a wood products industry tracking firm. And lumber doesn’t just go into framing a house. Those added costs hit cabinets, doors, windows, flooring.

    Lumber prices are skyrocketing for various reasons beyond just high demand from both homebuilders and remodelers. Lumber tariffs had prices already rising a year ago, but then when the pandemic hit, production shut down. The expectation was that housing demand would dry up for a long time. But instead, after a brief pause, it came roaring back. Homebuilders were caught off guard, as were lumber producers.

    “Clearly, increasing the cost of imports via tariffs does not help the situation,” said Robert Dietz, chief economist for the National Association of Home Builders. “We need to do everything that we can to increase domestic supply, including producing more domestic lumber, as well as resolving the trade dispute. It is matter of housing affordability.”

    The surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home, according to the NAHB.

    Workers install roof trusses onto a new house in Arvada, Colorado.Rick Wilking | Reuters