How Builders are Dealing with Rising Lumber Prices

As NAHB continues to work tirelessly to combat rising lumber prices and supply shortages by aggressively engaging with the Biden administration and members of Congress, builders who are on the frontlines are engaging in several strategies to mitigate this unprecedented price surge that is raising housing costs and impacting their bottom lines.

NAHB recently asked builders about their reactions to the rising and volatile lumber prices in its April 2021 survey for the NAHB/Wells Fargo Housing Market Index (HMI). Nearly half (47%) of single-family builders in the HMI panel indicated that they were including price escalation clauses in their sales contracts as their primary mitigation effort.

how builders are dealing with lumber prices

“It’s been a difficult time for us and home owners,” Jeremy Burke, a remodeler in Pennsylvania, shared through NAHB’s online lumber testimonial form. “We have had to prepare contracts with clauses for material change orders when materials cost rise — which I fear means we will lose contacts and/or projects for those who can’t afford the extra costs.”

Other efforts include pre-ordering lumber (29%) and obtaining lumber price guarantees from suppliers (22%). According to responses, prices were typically guaranteed for 15-29 days (42% of respondents reported) or 30-59 days (33% of respondents reported), for a median length of 28 days.

“We are pricing each unit on a case-by-case basis, and only after we have a commitment on actual lumber costs for that unit,” noted Thomas Troy, a builder in New Jersey, in a testimonial. “We are at the point where we are withholding new sections in some projects.”

Nearly one in five builders (19%) have also, unfortunately, had to delay building or sales when costs spike, and 15% indicated they are laying the foundation but pausing before framing. This puts further strain on the much-needed housing supply necessary to help make housing affordable.

“We have always prided ourselves on being able to provide affordable housing to our local market, while also being financially prudent to the best practices in the building industry,” stated Michael Welty, a builder in Colorado, in a testimonial. “When you couple these price increases with the limited amount of supply that currently resides in our housing market, the current conditions are creating an escalating market that in our opinion will eventually be unsustainable.”

Paul Emrath, vice president of surveys and housing policy research, provides more analysis and details in this Eye on Housing post.

To learn more about what NAHB is doing to address rising lumber prices and supply shortages visit nahb.org.

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Comments (17)

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  1. Contractor says:

    Switch to steel studs. Very easy on non load bearing walls. About half the price of wood studs around here.
    Be careful though. Once you switch you may not go back to wood.

    • Drew Carter says:

      Steel Studs are a great alternative – but not an even trade-off. Steel stud prices are rising, and you need to consider added costs from you MEP subs. Don’t forget the blocking!

  2. Escalation clauses are great but really just a band-aid that will quickly fall off. Most clients and lenders are not comfortable with this and want to limit exposure to 5% of the base build. Not much help when the price of Lumber alone has risen by 345%. Trying to work with Washington is also great but we need relief NOW. I suggest an immediate investigation into the feasibility and case law that may support a class action Lawsuit against the Mills who are flat our gouging the market because they can. Another option is to Subpoena them to appear before congress to explain WHY they are hiking prices so drastically. We know that the Stump price has not risen at all so the raw material cost of the timber is NOT the culprit.

    • Jerry Sinclair says:

      i agree there is a middleman charge that is killing the market. recently i got a quote for a timber package from a reputable small mill and got the same quote from my supplier. the supplier was 3 times higher. Something smells funny to me.

    • This may be a hard line but it has some merit. The building products industry has taken some hits since 2008-09 and have begun benchmarking other industries. They began by shutting down plants, lowering industry capacity, limiting product offerings and have been suspect to collusion in market prices. We are now seeing what has transpired. Since large building product manufacturers have raised prices 10-25% without repercussions, now all building product manufacturers are following suite and raising prices at unprecedented levels. Add on COVID impact of unavailable resources like labor, lack of shipping containers, due to freighters sitting in the ocean unable to dock, less skilled trades within the industry, etc. has all all contributed to reducing supplies even more…resulting in more justification for market pricing increases….it has caught on like a wild fire. It appears something needs to happen to stifle these ongoing market concerns or building a home will no longer be an option for the middle/lower income families.

  3. Jahna Davis says:

    In Montana we are not able to lock in lumber prices. Overnight our 7/16 OSB jumped $16 per sheet with no notice. Unless we prepurchase materials, there is nothing we can do! We are paying almost $40 for a treated 2x6x16. It’s absolutely outrageous. The worst part is it’s not just lumber. Everyone is jumping on the train. Simple garage doors have taken 3 price increases since Jan 1 for a total of 31%. There is no way this can sustain. Affordable housing is a thing of the past and unless someone (of higher power than the builders) get involved with holding these companies accountable for what they are doing, the new construction market is doomed.

  4. Jeff Dworkin says:

    Now electrical wire has tripled in price and electricians are adding a 35% “wire surcharge”! This is even if you have a bid already! Where is this gonna stop? I have never started a home without my costs 99% locked in, now I don’t know what’s truly “locked in”! Never seen anything like this in 30+ yrs in this business! Someone in DC has to look into these big companies “price gouging”! Just heard from my irrigation contractor that PVC prices doubled+ within 30 days!

  5. John Gooley says:

    The lumber prices are now getting ridiculous,
    We understand supply and availability but they don’t need to keep rising at these increases,
    Its hurting our industry and setting up for a big backfire,
    Set a price (20% less)and leave alone for 120 days to allow everything to catch up.

  6. Jose says:

    They are getting ready for the next housing market crash this year !
    Be careful !!

  7. It is too early to know what courts are going to do when builders try to impose an escalation clause that forces the buyer to pay the extra and keep the house, or pay for all work completed up to the point at which the clause is imposed plus O&P and walk away with nothing. Courts typically enforce force majeure clauses, and this type of escalation clause is designed to address a force majeure event, only when performance is deemed impossible, not difficult or economically challenging. Plus, an escalation clause isn’t much good if the buyer can’t qualify for the additional money, doesn’t have the money in savings, or the house doesn’t appraise.

    Builders should be wary of relying on these “clauses of adhesion” and instead consider moving to cost-plus, spec build, or contingencies whereby the buyer has a say in the final cost and can get out with a return of the earnest money if costs get beyond their pocketbook. In today’s market, it is unlikely a builder will get stuck with a house the buyer can’t perform on, and may actually do better than trying to force a buyer to pay for something s/he can’t afford. These are challenging times for everyone, buyers and contractors. Be careful thinking courts are going to side with contractors over buyers.

    • Tyler Bosier says:

      I think your response here is spot on and very intelligent. As a home builder I’m dealing with these exact issues on Escalation clauses and if they are a realistic approach. Thank you for your input

  8. Steven Rich ICC B5 Building Inspector says:

    If you are framing your structures conveniently, maybe look at advanced framing techniques. Substituting larger dimensional lumber, headers for example for plywood box beam construction or doubling a rim joist can save a bunch. I began using this method to build homes back in the early 80’s. This saved me as much as 30% in materials cost and 15 – 20% in labor. For the most part, depending on your jurisdiction and code adoption, the practice is proven and acceptable. The Engineered Wood Products Association has lots of available information on this.
    Many of my projects were featured in national magazines adding to the success of this type of construction along with other alternates such as permanent wood foundations, air tight drywall and the use of recycled content hard and soft surfaces. I’ve now retired from my 40 years of construction and still promote these alternative methods. I recently built a new house for my wife and I on the Big Island of Hawai’i incorporations all that I’ve written about. Both Builders and Building Inspectors were shocked at seeing a house being built with studs 24” o.c., no solid wood beams or headers, air sealing and lots of insulation. I can only imagine what the Plan Review Tech’s thought, I had no corrections on my “Approved for code compliance” plans. When sharing with them about my methodologies, they were even more baffled that my design took into account wind speed calc’s for 130mph and requirements for seismic zone D2.

  9. Robert Jordan says:

    If this is a bubble in product prices and reflected in the selling price of the home, I wonder what happens in the future when the homeowner goes to sell the house and the price of the new home in the future is based on the lower product costs. Will there be homeowners taking losses on the sale of their houses? Will the sales proceeds not be enough to pay off the mortgage? What happens to housing prices if the Feds rosy scenario of low interest rates doesn’t hold and housing prices of existing homes get knocked down?

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