Skyrocketing lumber prices that have tripled over the past 12 months have driven the price of an average new single-family home to rise by $35,872, according to new analysis by the National Association of Home Builders (NAHB), with the price spike threatening to hobble the momentum of the U.S. housing market, one of the bright stars of the recovery from the pandemic recession.
While homebuilder sentiment remains optimistic, as indicated by the NAHB Housing Market index, headwinds due to rising building costs have pulled the index down from recent highs.
"The supply chain for residential construction is tight, particularly regarding the cost and availability of lumber, appliances, and other building materials," said NAHB Chairman Chuck Fowke in a statement.
At the onset of the health crisis, "the mills stopped producing," said Dustin Jalbert, senior economist and lumber industry specialist at Fastmarkets in Burlington, Massachusetts. "As soon as they saw 20 million unemployed, they shut down production," Jalbert added.
But the pandemic drove demand for housing in low population density areas and for home office space, while the Fed dropped interest rates, driving mortgage rates down to historic lows. This confluence of factors turned out to be a boon for housing, with surging demand pushing housing inventories to record lows.
Lumber producers have struggled to catch up with the bustling homebuilding activity, with lumber prices jumping more than 300 percent year-on-year to record highs.