After more than a year of unprecedented increases, the cost of lumber has declined during the summer. That’s a positive sign, but it doesn’t mean the housing industry is sailing on calm waters.
Michael Kurpiel, a veteran building industry sales representative, said while lumber prices have dropped, don’t expect to see an increase in home sales driven by reduced overall prices.
“No,” Kurpiel said. “Builders will be looking to salvage some profit loss from the lumber crisis and home prices will remain at current rates until early spring '22.”
Michael Kurpiel
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Diana Lucero, vice president of construction lending for New Mexico Bank & Trust and an associate vice president of the New Mexico Home Builders Association, said she has never witnessed anything like the spike in housing costs during her three decades in the industry. This summer, the average cost of a house was up more than $35,000.
“You know, we have had market crashes that we've had to contend with and we've had lots of things like that where we couldn't get appraised value because now there were so many foreclosures,” she said earlier this year. “And we've been through all that. But I have not seen anything like this. This has been the most extreme that I have seen.
“And I think fortunately, because our industry was able to be, for the most part, essential around the country, everybody has continued to be busy,” she said. “The low interest rates have been great. But unfortunately, COVID did affect a lot of folks and their earning capacity.
“The last year has seen changes primarily, as you know, because of the lumber prices,” she said. “And as I say, that lumber, of course, is the number one because it has truly quadrupled since April of last year. But other prices are going up. And then I think just product availability and also I think just having people to build houses, you know, the builders are having a lot more trouble finding workforce. We have such a limited workforce.”
Lucero referred Kurpiel to the New Mexico Sun.
“I have turned to my colleague Michael Kurpiel to answer these questions for you,” she said. “He is in the lumber and building business and also sits on the board of National Association of Home Builders with me.”
Kurpiel is the director of business development and industry relation for Carter Lumber of Ocean Township, N.J. Like Lucero, the 2017 National Association of Home Builders' Associate of the Year, he keeps a keen eye on developments in the housing industry.
He said it’s too soon to expect lumber prices to stabilize.
“They are down to pre-pandemic prices,” Kurpiel said. “However, prices will fluctuate over the next several months with increases building now.”
Softwood lumber dropped in price this summer, but other products crucial to the housing industry, such as oriented strand board (OSB), used in panels, has remained much higher than before the pandemic. Steel products also jumped markedly, as steel mills dealt with the same issues as lumber mills.
The NAHB reported that the price of these 10 products had all increased by at least 30% in 2021: Steel mill products, building paper and building board mill products, asphalt, plastic water pipe, fertilizer materials, laminated veneer lumber, thermoplastic resins and plastics materials, structural metal joists and concrete reinforcing bars, wood window and door frames and copper pipe and tube.
“Builders are contending with shortages of building materials, buildable lots and skilled labor as well as a challenging regulatory environment,” Robert Dietz, NAHB’s chief economist, told CNBC this summer. “This is putting upward pressure on home prices and sidelining many prospective home buyers even as demand remains strong in a low-inventory environment.”
While lumber prices declined, housing costs are still rising, Kurpiel noted.
“As lumber comes down other products have gone up,” he said. “Houses built pre-pandemic are still around 35% higher today due to price increases in aluminum, vinyl, petroleum-based products (roofing), drywall, cabinets, millwork, etc. Prices on existing and new homes will stay relatively the same.”
That’s bad news for many would-be homeowners, Kurpiel said.
“Prices are still unaffordable for most middle-income people,” he said.