The housing industry is being put to the test again.
By Brian Alvarado
It’s hard to believe that the mid-way point of 2021 is finally here. After a robust housing market that thrived amid the pandemic, adversity is building for the home industry. Material pricing has soared. Most recently, the U.S. Commerce Department announced its desire to double tariffs on Canadian lumber. Specifically, the department recommended to more than double the “all others” preliminary countervailing and anti-dumping rate from 8.99% to 18.32%, according to Markets Insider.
National Association of Home Builders (NAHB) Chairman Chuck Fowke expressed displeasure after the announcement, as the rising costs have had a residual effect on rising home prices and affordability.
“This action clearly shows the White House is disingenuous when it claims the nation’s housing affordability crisis must be an important priority,” Fowke added. “This move certainly demonstrates a lack of courage to stand up to the U.S. lumber lobby that is already reaping record profits off the backs of hardworking American families.”
Fowke and the rest of the building industry were heard, as a few days later, Commerce Secretary Gina Raimondo held a meeting with the NAHB senior officer team and acknowledged the lumber price crisis and its effects on the rest of the industry.
“Commerce Secretary Raimondo understands that high lumber costs are adding tens of thousands of dollars to the price of a new home,” said NAHB Chairman Chuck Fowke, a custom home builder from Tampa, Fla. “She heard our stories and acknowledged that she is concerned – and that President Biden is concerned – about the effect of the lumber price problem on the broader economy.”
Since April 2020, lumber prices have quadrupled to more than $1,500 per thousand board feet. NAHB says that lumber prices alone are adding close to $36,000 to the price of a new home, which prices millions of middle-class households out of the market at a level they previously could afford.
After a robust housing market that thrived amid the pandemic, adversity is building for the home industry.”
Naturally, the rise of materials cost has put a damper into the nation’s inventory, as builders across the nation try to figure out how to keep up with demand. In the latest report from the Commerce Department, housing starts fell 9.5% to a seasonally adjusted annual rate of 1.569 million units for the month of April. Meanwhile, single-family homebuilding dropped 13.4% to a rate of 1.087 million units in April, which could be a signal of homebuilders putting a halt on projects.
Additionally, home sales have also seen a drop in recent weeks due to the lack of inventory. The National Association of Realtors (NAR) reported that pending home sales took a 4.4% fall in April. Meanwhile, year-over-year signings jumped 51.7% compared to last year.
“Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes,” said NAR Chief Economist Lawrence Yun in a press release. “The upper-end market is still moving sharply as inventory is more plentiful there.”
Despite the murky waters the industry has been in as of late, there’s much reason to believe that brighter days are ahead. Yun also predicted that housing supply will improve as a whole as soon as the fall, attributing to an increase in the comfortability of those listings, as well as an increase after the conclusion of the eviction moratorium or as they exit forbearance.
Additionally, in Patrick Duffy’s column this month, he also predicted a return to more normalized levels when it comes to home prices.
“Fortunately, although no one is predicting a housing market collapse thanks to stringent underwriting criteria and healthy equity levels, a return to a more normalized market absent multiple bidding wars may again gradually tip the scales from sellers towards buyers,” Duffy wrote.
So it really remains to be seen how the current lumber crisis will pan out. But if one thing is for sure it’s that the housing market continues to sizzle and inventory continues to diminish — not exactly the worst problem to have.
As mentioned in previous weeks by some of the top homebuilding figures in the industry, it’s important for builders across the nation to keep the optimism. Similar to how the housing industry surprised many with its performance during the pandemic, builders should remain calm and do their best to keep up with the pent-up demand.
“We think this year is likely to be the best year for economic growth since 1984…,” said NAHB Chief Economist Robert Dietz in this month’s interview. “The challenge, both for the overall economy and, to an even greater extent, the residential construction industry, is that economic activity is running too hot.”
Brian Alvarado is the editor for Green Home Builder Magazine. He can be reached at firstname.lastname@example.org.