The Housing Market Continues to Boom Despite Rising Lumber Prices

Despite a shortage of labor, a spike lumber prices and increased land prices, U.S. homebuilding and permits for new construction skyrocketed in December.

The Commerce Department detailed these stats from 2020:

  • Housing starts jumped to 5.8 percent.
  • Homebuilding increased to 5.2 percent.
  • Housing starts in 2020 were up 7 percent from 2019.
  • Permits for future homebuilding jumped to 4.5 percent.
  • Permits issued in 2020 were up 4.8 percent from 2019.
  • Single-family homebuilding skyrocketed in 2020 to 12 percent.
  • Single-family starts have consistently increased for eight months.

This housing boom took off even though lumber prices steadily increased throughout 2020. These prices spiked in the immediate wake of COVID-19 shutdowns, dropped a little in mid-2020, but then went back through the roof in late 2020.

The early part of 2020 saw lumber prices that consistently rose. A report from the National Association of Home Builders, published in September 2020, showed that lumber prices had risen by 130% by mid-April 2020. On average, the cost of single-family homes rose more than $16,000 because of the increase in lumber prices—a major impact on new construction builders as they plan new projects.

Lumber prices have been on a wild roller-coaster ride over the past year, and there is no indication that this will change any time soon. Even in a pandemic, the amount of lumber used in construction continues to rise. It’s all about supply and demand. New construction drives up the demand for lumber, but supply has actually dropped significantly. In North Carolina, for example, loggers saw a 35% reduction in wood production in 2020 for pandemic-related reasons. This doesn’t just affect North Carolina real estate investment—it has ripple effects across the entire country.

The double whammy of increased demand and decreased supply has led to the price spike—and it will take a while for supply to catch up.

Despite this trend, the amount of lumber being used has continued to rise. New housing stats showed an increase of about 17 percent between May and July last year. Low mortgage rates have kept the overall housing market hot, and DIYers and restaurants across the United States are also using more and more lumber to build things like decks, remodels and outdoor seating for patrons.

So, what does that mean for real estate investors considering new construction or other heavy-rehab real estate projects in 2021? Right now, construction is still going strong. Lumber inventory at home improvement stores like The Home Depot is improving each week. So while prices aren’t going to freefall anytime soon, the hope is that prices will stabilize and eventually retreat from record highs this year.

LEARN MORE: In December, Lima One’s Dalton Elliott spoke with Danny Linenger and Eric Anderson from The Home Depot about trends in lumber prices and construction as a whole. Watch the clip below or the full video here.

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