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  • Writer's pictureDon Magruder

Housing Material Costs Bouncing Back Up in Fall

For most of 2021, the focus of many American’s wanting to buy a home has been on the skyrocketing price to build a home, with a lot of attention being paid to the cost of lumber and other building materials. Through late spring and early summer, the lumber and plywood markets made an historic run-up in pricing that boxed millions of buyers out of the market. As the Delta Variant took hold across the country, and many Americans took a well needed vacation, these markets went into freefall.

The wood market correction went from late-June to mid-August, and during this period, the lumber markets dropped almost 67 percent, while the sheathing markets dipped 62 percent. With drops like this, it is an assumption among builders and consumers that housing pricing should drop, but that is not happening. In fact, home prices continue to rise as summer gives way to fall in 2021, and this is due to many factors.

First, the historic low housing inventories and the overwhelming demand is keeping home prices on the rise. Many counties in Florida have less than 1 to 2 months of available housing, and while that has improved slightly over the spring, the markets simply do not have enough available housing- especially affordable housing.

While lumber and sheathing prices have come down from historic highs, the rest of the building supply chain has continued to see price escalations. COVID-19 delays persist domestically and overseas, as many foreign markets remain in some form of lockdown, due to vaccine limitations. Additionally, anything that uses steel or plastic has seen soaring raw material costs which has created monthly increases in things like steel doors and vinyl windows. Lead times for windows remain excessive due to raw material shortages. Trusses also continue to have excessive lead times with no improvement due to shortages in steel plates. The steel shortage issue is beginning to have a negative impact on other items such as garage doors, masonry metals, and steel studs.

Buildable lots are in short supply and the cost of raw land continues to increase. Lot prices that were $10,000 to $15,000 five years ago are now selling three and four times that price. Furthermore, the costs to develop raw land due to government regulations, along with the higher priced land, are increasing the prices of similar size lots to $50,000 to $70,000. The high costs of government regulations to develop land is hindering affordable workforce housing.

The RoMac Building Supply Whole House Commodity Index hit bottom in August 2021 when it dropped a whopping 24.6 percent from its record high in June, but in September this Index rebounded .9 percent. The September Index finished 2.5 percent higher than the prior year when lumber pricing was much higher. This indicates how much the other parts of the supply chain are really affecting the total price of a home.

What is the housing price forecast for the rest of 2021? After the Index touched the bottom in June, there is little doubt that housing prices will not decline through December unless there is a black swan economic event. Material pricing will continue to increase, and the supply chain will remain disrupted until the COVID-19 pandemic is resolved, and by all accounts, the low vaccination rates in America give little hope of that happening any time soon.

Nothing fundamentally has changed in the housing market over the last few months. Inventory is low, demand is high, the supply chain is disrupted, and raw materials in many sectors remain short. Until a fundamental change occurs, there will be little chance the pricing in the housing market will retreat. If Washington D.C. politicians start pumping money into housing, as expected, these markets could heat up. If you are sitting on the sidelines waiting for home prices to settle before buying, you may be on the sidelines for a while especially if housing costs are bouncing off the lows of this summer.

Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Show which can be seen at AroundtheHouse.TV.

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