Builders Say Lumber Tops Labor as Biggest Challenge

Filed in Business Management, Economics, Material Costs by on May 25, 2018 5 Comments

NAHB Chief Economist Robert Dietz provided this housing industry overview in the bi-weekly newsletter Eye on the Economy

The most serious headwind facing housing markets today is the escalation of framing lumber prices — up 59% since the start of 2017. Recent NAHB surveys suggest the price for lumber has overtaken the availability of labor as the primary business challenge for home builders.

Since the beginning of last year, rising lumber prices have added more than $7,000 to the price of a typical new home and more than $2,000 to the price of a typical apartment.

“In the little markets, most builders are very small and so are their margins. When you add $7,000 to the cost of a home [that’s 300,000], people walk away,” said Dale Oxley of Modern Home Concepts in Hurricane, W.Va. “When you have a market that’s anemic, a small builder is pretty much out of business – you can’t get an appraisal to reflect [the additional cost of lumber], so it’s left to the contractor to eat.”

There are a number of reasons why lumber prices have jumped, including a rail car shortage in Canada, but the primary factor is the 21% effective tariff rate placed on Canadian softwood lumber. The ongoing concerns over trade wars represent a macroeconomic risk to the gains resulting from the recent tax legislation, and lumber is a prime example.

Nonetheless, builder confidence remains strong, despite total housing starts falling 3.7% in April. Though multifamily starts declined 11% last month, that market is up 10% year-to-date, outperforming our forecast. And single-family starts are 8% above their year-to-date totals from a year ago. However, recent data show a gain in average new-home size, which is an early indicator of weakness in the entry-level market due to rising input costs.

For more, go to Eye On Housing.

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Comments (5)

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  1. John Gooley says:

    They say lumber is going up because of demand. Is that rally true??
    The food and electronicts industry are lucky that the lumber industry is not part of them.
    Turkeys at Thanksgiving would be over $15.00 a pound and TV’s at Christmas time would be over $10,000.00 each.

  2. Mark Ellis Tipton says:

    What an appropriate Holiday for the housing industry; “Memorial Day” ! While we reflect on the sacrifices that our fallen veterans have made we may want to reflect on our own industry and the history of our own industry. I am a second generation home builder and a former President of the National Association of Home Builders and the President during the worst times in recorded history until this last recession. I have watched and suffered through many ups and downs in our industry and watched as the NAHB brings out the cannons to ward off the downs and continue to fight for a level playing field. As I watch the recovery from the 2008 disaster and the very slow recovery I can’t help but wonder if I live in a vaccum? We are talking about tariffs on lumber as the major reason for this shortage and a 57% increase in lumber since last year; are you kidding me? Why aren’t we willing to call a spade a spade and get to the real reasons for the increases. GREED! Why aren’t the production mills at full capacity; how much Canadian lumber have you seen used in the South before and now during this GREED fest? Why aren’t we asking for permission to forest the National Forest instead of allowing the trees to rot on the ground floor? At my last viewing of Eye on the Economy we are still no where near the “normal” housing year in this country. We are in the low million starts and a “normal” year was housing starts in the 1.6 to 1.8 million units. How are we using lumber faster than when we were at full capacity. In the year 2005 we broke the 2 million starts and this was an oddity that should have never happen but we had plenty of lumber? If I am correct then we either get the Production mills working at full capaciy or every single builder in America needs to stop framing until things get back in shape. In case you haven’t figured it out yet we do hold all of the cards and have been the patsy for decade after decade. Understand I am not saying that the tariffs are not hurting us but they are not the knife in the coffin! In this case even the National Public Builders are suffering from this outrageous artificial price increases because they are balance sheet driven. If they are taking a beating on losing 7,000 per house ( and most of their homes are presold) then their balance sheets are suffering and their mulitples are suffering equaling their stock prices and value is falling. And as mentioned the surviving builders that are left from the last recession are barely holding on. We need an all out and an immediate response to this outrageous raping of our industry because of Greed! We need action and immediate action to stop this and get our industry on a final road to recovery! Let’s stop building until someone starts listening!

  3. amen brother!
    the question is what can our national do to help us
    it is not a local problem but we need the president to get involved so..lets get going nahb

  4. Mark Ellis Tipton says:

    Stuart NAHB is one of the greatest organizations that has ever been for an industry. NAHB has consistantly fought the battles while builders are building homes for Americans. Whether you are a small custom builder, a multifamily builder or a Regional and National Builder NAHB is always fighting on your behalf. Jerry Howard and his staff know first hand the pain and suffering that we as builders endure and fight the issues that we face at a local level in Washington. If you track the history of NAHB you will see that the majority of the issues that they fight originate by a member in a local association and is elevated to NAHB and not the reverse. We always have in the past and must always continue to make sure that the home buyers are best served by what we ultimately do and in that regard I would suggest that:

    NAHB first investigate my claim that the production levels are not at the capacity that will supply enough lumber to satisfy demand. If they are not then we need to figure out a way to incentivise them to start more production to feel demand.

    Delivery truck drivers are a major issue and we need to work with the Department of Transportation to increase the number of Truck Drivers. (there is a lot of activity in many segments of the economy working on this issue and we need to be out front)

    We need to be working with the President of the United States and the Secretary of the Interior to be able to timber the National Forest (if the supply of material is an issue which I don’t think it is) We also need to support our President in his efforts to make America have a level playing field for all Americans and find alternative sources of lumber to offset any tariff that any country can place on us. It is not like we don’t have the natural resources to do this. If Canada wants to keep their lumber then so be it but hopefully we will have long memories. Canada has been and should always be our partners and we should be able to work something out that doesn’t punish our American home buyers!

    NAHB needs to form a coalition with the Public, National, and Regional Builders and any other groups such as Home Owners to fight this greed and further our agenda to protect home ownership. Everyone is suffering from this unnecessary greed and it has to stop!

    NAHB has great leadership and we should support NAHB with everything we have so they can continue to fight our battles while we try to build homes and apartments for all Americans!

  5. Jim Petersen says:

    Builders won’t stop building for the same reasons sawmill owners are running at full capacity. And it isn’t greed. It is the need to recover from enormous losses suffered during the “great” recession.

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