Homebuyers hit by lumber prices near record highs

Cost of average single-family home up $9,000 since Jan. 2017

If rising mortgage rates and a limited supply of homes weren’t enough, add this factor to the list of things making houses pricier for Americans to buy and own: sky-high lumber costs.

Lumber futures hit at an all-time high of $639 per 1,000 board feet on May 17, according to the Chicago Mercantile Exchange, and although they’ve pulled back to $547 since then, they’re still well above a market that has rarely climbed above $400 the past few decades.

As a result of the higher wood costs, the price of the average new single-family home has increased by almost $9,000 since January 2017, according to the National Association of Home Builders, a federation of state and local associations.

At the end of April, the latest NAHB data available, the average new single-family home price was $407,300.

“Builders are becoming increasingly concerned about home affordability, especially in the entry-level market,” Barclays analyst Pooja Sriram says.

Lumber prices have increased due to a confluence of factors. A severe Canadian wildfire, an ongoing trade dispute between the United States and Canada and limited rail capacity are the main culprits.

Typically, up to 97 percent of American lumber imports come from Canada, and President Donald Trump recently imposed tariffs of more than 20 percent on Canadian lumber — making the import more expensive.

In some cases, builders have opted to pass the rising cost of lumber onto aspiring home buyers. This gives consumers two options: pay a higher premium for a new home or refuse to buy it.

Many consumers have opted for the latter, said Jerry Howard, NAHB chief executive officer. The number of new home sales have come in below analysts’ expectations for three of the past fourth months reported.

For example, in April, new home sales fell 1.5 percent to 662,000 on an annualized basis, and fell short of the 680,000 that Wall Street had forecast.

Millenials are the age group most harmed by these rising prices for new homes. Fresh out of college, millenials have to pay off student loans, take on entrylevel job positions and learn how to manage their personal finances.

The expense can serve as a major impediment for these first-time home buyers.

“(Millenials) are the ones who haven’t owned homes in the past, and they’re probably looking to buy homes now that the economy is really booming,” said Patrick Tyrrell, a research coordinator in The Heritage Foundation’s Center for International Trade and Economics.

Adding to that strain are rising mortgage costs. According the most recent Mortgage Bankers Association report, the current mortgage rate is 4.83 percent — a 0.7 percent increase from last year. With the NAHB’s average price for a new single-family home of $407,300, recent home buyers are paying $135 more on their mortgages per month than buyers a year ago.

In other cases, home builders choose to absorb the cost. Yet consumers still lose in this case.

According to Howard, builders’ profit margins are “dwindling to the point where they’re reluctant to sign up” to build new homes, he said.

With builders wary to build, aspiring buyers have fewer options.

Additionally, builder confidence in the market for newly built single-family homes fell two points to 68 in June, according to the NAHB/Wells Fargo Housing Market Index.

This marks the lowest confidence rating of 2018.