Builders face less land, costly lumber
Wood prices double in a year; available housing lots reduced by 100,000
LOS ANGELES — U.S. home builders are poised to benefit this spring home buying season amid strong demand, low mortgage rates and an all-time low inventory of previously occupied homes for sale. But soaring lumber prices and a shortage of construction-ready land could limit their ability to capitalize on the strong housing market trends, analysts say.
The price of lumber more than doubled over the last year to an all-time high, reflecting strong demand for new construction and home remodeling, and pandemic-related problems limiting production.
The sharp rise in the cost of lumber, among other building materials, is a concern to builders because it drives up costs, potentially shrinking the pool of would-be buyers who can afford to purchase a home.
Builders are also grappling with a shrinking supply of developed lots, or land that’s ready for construction.
Robert Dietz, the National Association of Home Builders’ chief economist, said he expects sales to grow at a slower pace, despite an overall strong housing market.
“The home-building market is going to grow in 2021, but the growth rate itself is going to be lower than what we experienced in 2020, due to the fact that these housing affordability headwinds like lumber, a lack of lots, are becoming more binding this year,” Dietz said.
The housing market mounted a strong comeback last summer after declining sharply in the spring when the coronavirus outbreak hit. Sales of previously occupied U.S. homes surged last year to the highest level since 2006 at the height of the housing boom, according to the National Association of Realtors.
Sales of new homes, meanwhile, jumped 19% in 2020 over the previous year, according to the Commerce Department.
New home sales climbed a further 4.3% last month.
The number of Americans who signed contracts to buy homes declined again in January with the number of properties for sale not matching the surging demand.
The National Association of Realtors’ index of pending home sales fell 2.8% to
122.8, which was still a record high for the month. Despite the recent declines, contract signings are still 13% ahead of where they were last year at this point.
Several market trends are driving strong demand for home ownership.
Mortgage rates remain at historic lows. According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 2.97% this week. It was 3.45% a year ago.
Another factor in the trend is that Americans forced to work from home in the pandemic are seeking larger homes. And more millennials are entering the market.
Other trends, including an all-time low inventory of resale homes of 1.04 million (less than two months’ supply), should pave the way for home builders to enjoy a banner year. But those prospects have dimmed amid the industry’s land and building supplies constraints.
The rise in the price of lumber, a consequence of many mills running at less than full capacity because of the pandemic, has been particularly worrisome for builders. Lumber has been on a tear since April. The price settled Tuesday at $1,018.10 per thousand board feet, just below the alltime high it set a day earlier, according to FactSet.
For some builders, finding land to build on is a bigger problem. The number of lots available for new home construction has fallen steadily for years, reaching 630,800 last year, according to Zonda Economics. That’s down from 731,689 five years earlier.