Lumber prices falling
Dabl At Home Dec 2020
Presented By
Dabl at Home

How The Price Of Lumber Today Will Impact Your Future Home Tomorrow

The price and availability of lumber can impact the next time you buy a house more than you’d think!

After months of home shortages leading to a house buying frenzy where sellers would frequently receive multiple offers, the winds in the real estate market have begun to change. Instead of panic buying homes for fear of missing out on limited inventory, potential homebuyers are opting to bide their time instead, making it less of a seller’s market. Now, major changes in the price of lumber are throwing the real estate market into flux once again! 

For the first part of 2021, we were in a “lumber bubble.” At their peak in May, lumber prices reached an all time high at $1,670.50 per thousand board feet on a closing basis, which is more than 5 times higher than lumber prices during the pandemic. This was confounded by a shortage of workers and lumber, which made the prices of lumber skyrocket as demand for lumber increased and supply dwindled. Now, that lumber bubble seems to have finally burst. Lumber futures dropped by 40% in the month of June, which is the biggest monthly drop in the lumber industry since 1978. The significant price drop is attributed to Americans’ choice to travel instead of renovating their homes in recent months, as well as decreases in home sales. 

What It Means For Home Prices: 

The surge in lumber prices was largely caused by reduced supply in a real estate market that was demanding new and improved homes in the middle of a pandemic and a housing shortage. At the time, soaring lumber prices caused the price of the average single family home to increase by approximately $36,000. As lumber costs are falling, the housing boom seems to be fizzling. New home sales are decreasing as well, indicating that the demand for new real estate is starting to level off a bit. While home sales are up 48% in 2021 when compared to the same time in 2020, the rate at which sales are occurring is declining month to month. The most significant drop occurred in the Northeastern region of the country, where home selling rates dropped by almost 14%. This may mean that housing prices will begin to drop in the coming months, furthering the shift from a seller’s market to a buyer’s market. 

That said, the West has been an outlier in following this trend. While the amount of homes sold decreased in every other part of the country, home sale rates increased in the Western region by almost 4%. Therefore, the real estate market may remain pricey and competitive in Western states when compared to the rest of the country. 

What It Means For Building Homes:

During the lumber shortages when prices skyrocketed, home builders struggled to find the materials and labor to move construction along. When they could obtain the necessary lumber for building, home builders would typically pass the added cost along to the homebuyer, increasing the average cost of building your own home. Even with lumber prices dropping, home builders are still proceeding with caution in case of another price hike. Builders are waiting to accept offers from potential buyers until they’ve broken ground on new houses out of fear that costs will rise again, therefore diminishing the builder’s profits. This hesitation is also a key contributor to limiting the number of possible home sales, and could partially explain while home sale rates are dropping. 

What It Means For Furnishing Your Home:

Whether you are remodeling your home with a new look or furnishing a recently purchased home, the pieces you choose to furnish your home are probably made from lumber. While most of us were forced to stay home during the pandemic, we realized changes we wanted to make to our homes and rooms we wanted to update with new furniture. This added demand for new furniture during a time when suppliers were unable to access the materials to make and deliver ordered products. This has led to price increases on furniture and delays on delivery. If you need to order new furniture now, be prepared to shell out more cash and potentially wait months for your new furniture to be ready for you. 

If you are about to move, we recommend holding onto your existing furniture until the bottleneck caused by the lumber shortage and price increases has a chance to fully resolve itself. Many people choose not to move their furniture because it can actually be cheaper to furnish the new house than to move everything. But in this case, prices are extremely inflated and you may be stuck living in a furniture-less house for months. 

The Key Takeaway:

We expect more change to occur in the real estate market in the coming months. While no one can be sure of the future, patience is a virtue. If you’re planning to buy a house soon, watching and waiting as real estate pricing and demand change in the second half of the year may work in your favor, especially if it truly morphs into a buyer’s market. Always make sure to consult with a knowledgeable real estate professional in your area. 

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