Originally published by the National Association of Home Builders – August 21, 2020

According to NAHB’s standard estimates of lumber used to build the average home, the recent spike in softwood lumber prices has caused the price of an average new single-family home to increase by $14,116 since April 17.  Similarly, the market value of the average new multifamily home has increased by $5,322 over the same period due to the surge in lumber prices.

These estimates are based on the softwood lumber that goes into the average new home, as captured in the Builder Practices Survey conducted by Home Innovation Research Labs.  Included is any softwood used in structural framing (including beams, joists, headers, rafters and trusses) sheathing, flooring and underlayment, interior wall and ceiling finishing, cabinets, doors, windows, roofing, siding, soffit and fascia, and exterior features such as garages, porches, decks, railing, fences and landscape walls.  The softwood products considered include lumber of various dimensions (including any that may be appearance grade or pressure treated for outdoor use), plywood, OSB, particleboard, fiberboard, shakes and shingles—in short, any of the products sold by U.S. sawmills and tracked on a weekly basis by Random Lengths.

Builders do not in general buy lumber directly from sawmills, but from an intermediate wholesaler or retailer—often a lumber yard (see Buying Products for Home Building & Remodeling: Who and Where).  For that reason, sawmill prices are marked up by “gross margin as a percent of sales” for the “lumber and other construction materials” industry, as reported in the U.S. Census Bureau’s Annual Wholesale Trade Tables, to better reflect the price builders pay.

Softwood lumber is also an input into certain manufactured products that are subsequently used in residential construction.  These products are typically marked up by the manufacturer before being sold to a lumber yard or other intermediary.  To account for the manufacturer’s margin, sawmill prices for the lumber in these products are further marked up by the percent difference between receipts and cost of goods in the “wood product manufacturing” industry, as reported in the IRS Returns of Active Corporations tables.  In the average home, this applies primarily to cabinets, windows, doors and trusses.

At the prices reported by Random Lengths on April 17, 2020, the total cost to a builder for all the lumber and lumber-related products described above was $16,927 for the products in an average single-family home, and $5,940 for the products in an average multifamily home.

But by the time random Lengths reported prices on August 14, the cost to builders had risen to $28,765 for the softwood lumber products in an average single-family, and $10,403 for the products in an average multifamily, home.  This is an $11,838 (or 70 percent) and $4,463 (75 percent) increase, respectively, in only four months.

The price of the home to the ultimate buyer has gone up by even somewhat more than this, due to factors such as interest on construction loans, brokers’ fees, and margins required to attract capital to residential construction and get construction loans underwritten.  For items such as lumber that are purchased and used throughout the construction process, NAHB has estimated that the buyer’s price will increase by an additional 19.2 percent (see the appendix to Government Regulation in the Price of a New Home for details).

The bottom line is that the spike in lumber prices that occurred between April 17 and August 14 of 2020 caused the price of an average new single-family home to increase by $14,116, and the market value of an average new multifamily home to increase by $5,322.

Based on NAHB’s standard priced-out calculations, a $14,116 increase in the median new home price will price more than 2.1 million U.S. households out of the market, meaning that these households could qualify for a mortgage to buy the median-priced new before home the price increase, but not afterwards.

Originally published by the National Association of Home Builders – August 21, 2020