Lumber woes helping drive housing frenzy, construction stalls

AUSTIN, TEXAS  — Buying a new home is typically exciting – except when you can’t find a house or even build a new one.

People looking to buy homes in 2021 are running into a hot housing market and those looking to build homes are running into costly materials that are short in supply.

Homes are being bought and sold in hours, not days. Melanie Strong, who has been a realtor in Texas for eight years is experiencing a housing market that is bordering on historic. 

"Any lender and other agents that I have talked to have never seen anything like this," Strong said. "It is just a waiting game right now."

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Strong works with people looking for homes in central Texas and right now, finding those homes seems near impossible.

"I actually just wrote an offer for a client to buy for 100,000 dollars over asking," said Strong but that is not the unbelievable part. "Their offer didn’t even get picked because there was a better one." 

The buying frenzy is so fast-paced, Strong said she "didn’t even make it to an open house before the house was off the market. It is a really crazy time right now."

Clients are turning to purchase land to build homes, but as the economy works to recover from impacts from the COVID-19 pandemic, that route is also proving to be a tough one.

"We have all of these people out here wanting to buy homes and build homes, but the inventory is so low for resale homes and nobody can get any lumber or a lot of other materials to build homes on top of that," Strong said.

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The National Association of Home Buyers reports surging lumber prices have pushed the average cost to build a single-family home up by more than $35,000 compared to 2020.

Ken Simonson, the chief economist for the Associated General Contractors of America, said the problem started in March of 2020 when the pandemic hit shutting down home construction sites.

Now home building sites are up and running but are facing roadblocks. "Both home builders and non-residential contractors have been ordering lumber, but at the mills, they have had trouble getting workers back, so they are still not at full capacity," Simonson told FOX Business, "So, you have this surge in demand not being matched by supply and that is driving up prices week after week." 

The rise in costs is enough to give a prospective home buyer whiplash. The NAHB reports that prices for lumber alone have soared by more than 200% since April of 2020.

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The constant change in pricing creates a chain reaction as contractors sometimes lose set prices to offer on a project which can force some to lose bids on building new homes. 

Jody Giacomini, president of Cathedral Builders, has been in the construction business for more than two decades but is feeling pressure from the challenges of the marketplace. 

"We can’t survive if we can’t build things," Giacomini said. "I want to keep my business open for my employees and their families and it feels like an impossible endeavor right now."

Cathedral Builders focuses largely on the commercial sector but says the pricing issues are similar to what home builders are experiencing. 

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"We are seeing pricing increases anywhere from 30 percent to 100 percent even," Giacomini said. "Right now, we don’t even feel confident holding a price for one week - sometimes one day, so that makes it impossible to bid to anyone with confidence."

While some economists predict the price of lumber may start to fall in July, nothing is for certain and inflation could play a role.

"The futures pricing is suggesting that several months from now prices will be a good deal lower than they are, but they will still be relatively high prices," Simonson said. "For six straight days, the futures price for lumber to be delivered in July has tumbled from what was a record high."

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In the meantime, Giacomini is looking for any type of relief that can be given to the industry.

"For a small to mid-sized business like we are, I don’t know how long we can withstand this instability," Giacomini said. "I feel like we need the supply issues addressed. We need the instability of pricing to be addressed and manufacturers need product they can depend on."

The Associated General Contractors of America and 36 other organizations though are not sitting on idle hands as the groups recently sent a letter to the Biden administration urging it to find a solution for the high lumber costs.

The letter read in part:

"Housing and construction can do their parts to create jobs, boost the economy to its pre-pandemic strength, and provide safe and affordable housing for all Americans, but in order to do so the federal government needs to address skyrocketing lumber prices and chronic shortages. We urge you to undertake a thorough examination of the lumber supply chain and seek remedies that will increase production. Thank you for your attention to this important matter."

Industry leaders are also speaking out against the U.S. Commerce Department’s move to double lumber tariffs on Canadian lumber shipments.

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Under the Trump administration, Canada was hit with tariffs of up to 24% in April of 2017. During his final months in office, Trump cut those tariffs to 9%.

Now, the Biden administration is proposing a hike in those same tariffs from 9 percent to 18.32%.

On May 22, 2021, NAHB Chairman Chuck Fowke spoke out about the planned move stating "the administration should be ashamed or casting its lot with special interest groups and abandoning the interests of the American people."