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Lumber Prices and New Construction


People have commented on the current high prices of lumber and how that impacts new construction. Below are observations regarding lumber prices nationally as well as prices in Virginia at this time.

NATIONALLY

Nationally, new home construction has hit a 15-year high, fueled by strong housing demand. In May, home builders started construction on new homes at a pace of 1.57 million annually, a 3.6% increase over April and 50.3% above the level in May 2020.

The National Association of Realtors has recently shared information about the high prices of lumber. The price of framing lumber has plunged about 50% over the last seven weeks, offering up a hopeful sign that skyrocketing building costs would ease. However, builders say that the prices they pay have only declined by a fraction of that percentage. The disconnect in pricing has always existed in the lumber supply chain. It can still be a “long lag time” before the full price reductions come to builders, the National Association of Home Builders reports.

“As the price declines began grabbing headlines, the price of lumber packages quoted to builders held at record highs,” NAHB economist David Logan writes on the association’s blog, Eye on Housing. “This dynamic is primarily due to dealers’ inventory carrying costs and potentially large differences between the price at which inventory is bought and sold.”

The lumber supply chain consists of the following stages: from forest to sawmill to wholesaler to retailer to end user. The association offers up an explanatory reason prices are staying elevated at its Eye on Housing blog. Wholesalers and retailers have incentive to run through their existing inventory and recover what they paid for it—one of many factors that is currently keeping prices elevated for builders.

So, when will lower prices reach the builders and ultimately new-home buyers? The answer is unclear, but builders say more price drops in lumber may be needed. “Prices must fall for long enough to materially lower a supplier’s average costs after a run-up,” the association blog notes. “Depending on the rate and consistency of price decreases and whether prices have stabilized at the lower level, it may take a few weeks to a couple of months for builders to see price relief on the order initially reported in the futures or cash markets.”

Meanwhile, new-home building prices for home buyers continue to rise. In May, the median price of a newly built home was 18% higher than a year ago, at $374,400.

Source: “Why Builder Lumber Prices Remain Higher Than Headlines Suggest,” National Association of Home Builders’ Eye on Housing blog (July 6, 2021)

IN VIRGINIA

According to Dr. Lisa Sturtevant, Chief Economist for the Virginia Association of Realtors, new housing construction is up, and lumber prices are down. In Virginia, there were 3,125 permits issued for the construction of new residential units in May. Nearly 80% of permits were issued for the construction of single-family homes, while 20% were for units in multifamily buildings, including apartments and condominiums.

Like in many other places around the country, new home construction been on the rise in Virginia. In the first five months of 2021, there was a total of 17,685 permits issued for new housing construction in the state. By comparison, there were just 13,744 permits issued between January and May 2020. Year-to-date, the number of permits for new housing construction was up 28.7% compared to last year, with a 25.0% increase in single-family permits and a 36.3% increase in permits for multifamily housing units.

The cost of construction materials has been a major impediment to new construction. Lumber prices, in particular, surged to historically high levels during the COVID-19 pandemic. Back in March 2020, the futures price of lumber was $303 per thousand board feet. The cost more than quintupled over the past 14 months, reaching a high of $1,608 per thousand board feet in May 2021.

Lumber prices skyrocketed as a result of strong demand for new homes and a major interest in home renovations and DIY projects by people stuck at home. At the same time, supply chains have been disrupted by the pandemic and recession.

However, there is good news on the lumber costs issue. In June 2021, prices fell below $900 per thousand board foot of lumber, reflecting a drop of 44.2% from the recent peak. The drop in lumber prices is good news for builders. Some new residential projects that have been put on hold could start back up again as costs fall.

Lumber prices are falling now as more sawmills have been able to open up more fully and ramp up production. In addition, the opening up of the economy means that more people are back at the office and are spending less time on DIY projects around the house which has led to slower demand from homeowners.

Falling materials costs (e.g., lumber, concrete, steel, brick/masonry) are a good sign for the home building industry and for consumers looking for more choices. However, there are still challenges to home building. The shortage of construction workers, limited building-ready lots, and zoning regulations that limit homebuilding will continue to be challenges to building enough housing to meet demand.

 

Filed Under: Blog, Information for buyers, New Construction, Tagged With: information for buyers, Lumber Costs, new construction

Home Price Update For Virginia

Home prices in Virginia have been up by double-digit rates—or close to it—for ten consecutive months.   According to Lisa Sturtevant, Chief Economist of the Virginia Association of Realtors, in May, the median home sales price in Virginia was $367,000 which was up 16.6% compared to the median sales price a year ago. The pace of sales growth this year has been much faster than in recent years, fueled by strong demand, favorable mortgage rates, and low inventory.

Strong Prices Across All Regions

There has been phenomenal price growth in all regions across Virginia. So far, for sales in 2021, the median statewide home price is 13.2% higher than it was during the same period in 2020. The strongest price growth in 2021 has been in some of the state’s smaller markets. For example, the year-to-date median price in the Eastern region is up 25.7%. In the Southside region, prices are 24.2% higher in 2021 compared to 2020.

There has been double-digit price growth in all areas of the commonwealth, including the state’s largest and highest-cost markets. The median price in Northern Virginia climbed 11.9% in the first five months of 2021. Prices are up 15.0% in the Central Virginia region and are 11.1% higher in the Hampton Roads region.

Prices Growing More than Twice as Fast as in Recent Years

In most markets, home prices are growing more than twice as fast as they have in more typical years. Between 2016 and 2021, for example, the median sales price statewide increased by 6.2% on an annual basis. Over the past eight years, since 2013, annual price growth averaged just 4.6% in Virginia.

Price Growth Will Likely Slow

Recent trends in home prices suggest that this past year has, indeed, been extraordinary. While price growth will remain strong throughout 2021 and into 2022, it is likely that the pace of home price appreciation will slow as demand softens, mortgage rates tick up, and inventory expands.

Virginia REALTORS® will release its economic and housing market forecasts later this year, at the 2021 Annual Convention. Several national organizations are forecasting above-average home price growth through 2021, although there is evidence of a slow down in appreciation in 2022. Only the Mortgage Bankers Association (MBA) is predicting a price drop in 2022. The vast majority of economists, however, expect prices to continue to rise.

 

 

 

Filed Under: Blog, Central Virginia Real Estate Properties, Charlottesville VA Homes, Information for buyers, information for home owners, Information for sellers, Market Reports Tagged With: information for buyers, information for sellers, new construction

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Pam Dent
Phone: (434) 960-0161
Email: [email protected]
Gayle Harvey Real Estate Inc.
198 Spotnap Rd, #C-5,
Charlottesville, VA 22911


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