Is the worst of the lumber pricing surge over? Not quite. Pre-pandemic, lumber traded at $300 to $500 per thousand board feet of two-by-fours. While the pricing has fallen slightly since early May, from $1,700 to $1,453, that is still four times what it was over a year ago.
No doubt, the pricing of lumber is effecting new home construction nationwide. For those who have already bought land or are thinking about entering into a new home construction contract, should you wait to build?
That is the question on a lot of people’s minds. For example, last year, for a 2,000 square-foot-home lumber package, you would pay about $19,000. Today, one year later, that same lumber package for a 2,000 square foot home is about $76,000.
Yet, there are more factors to consider than just the price of lumber (though that is a big one!). Lead times on supplies from windows to trim to drywall have increased, along with the cost of those supplies; in fact, they could even go up higher.
Availability of metal and even chemicals used in new construction is experiencing a shortage in the U.S. As Jeff Rettig, vice president of supply chain at Builders First Source, mentioned on the Build Podcast, production should pick up in the second half of the year as mills get back up and running to meet the demand, which will help.
So, does that mean consumers should wait to build? Not exactly. In addition to lumber and other material supply availability, your clients and customers have to consider all financial implications. For example, can they afford to live in an Airbnb or rental for an extended period of time, and what will happen to the equity in their home if they wait to sell?
In addition, there is the potential disruption to your family, missing out on a job opportunity or further delays with material shipments if you wait. Time, money and the impact on lifestyle all need to be considered.
In listening to what Rettig and Matt Risinger discussed on the podcast, what I found most interesting is that the cost of building a home generally goes up every year. Commodities go up and down.
Unless you timed the building of your house perfectly to coincide with the middle of the recession in 2011 (which was the cheapest time to build a house), then now is as good a time as any to build. It’s always going to be more expensive to build a house than to buy an existing home — and your clients need to be educated on this.
Here’s another real-time example for you: My construction company priced out a new custom home build about 60 days ago. The estimate came in at $700,000. This week, we went back to update the pricing, and the cost of lumber was up $37,000 — $37,000 in 60 days!
Interestingly though, existing home sale prices also increased by about the same amount in the past 60 days.
So, the best time to build? Right now. Yes, even with commodity prices up. When clients decide to build a home, they usually are entering into it as a long-term commitment, which requires long-term planning.
The price of lumber and some materials is just a small part of the overall price of the house. And with existing home prices rising, it’s right in line with what the commodities are doing. There truly is no time like the present.
Adam Hergenrother is the founder and CEO of Adam Hergenrother Companies