According to NAHB’s latest estimates, rising softwood lumber prices over the last 12 months have added $35,872 to the price of an average new single-family home, and $12,966 to the market value of an average new multifamily home. That increase in multifamily value translates to households paying $119 a month more to rent a new apartment.
These estimates are based on the softwood lumber used directly and embodied in products that go 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 and other building products directly from sawmills, but from an intermediary like a lumber yard. 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.
Softwood lumber is also an input into certain manufactured products used in residential construction—especially cabinets, windows, doors and trusses. To account for the manufacturer’s margin, sawmill prices for the lumber embodied in these products are 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.
For the prices reported by Random Lengths on April 17, 2020, the total cost to a builder for all the lumber and manufactured lumber 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.
A year later, based on Random Lengths prices reported on April 23, 2021, the fully phased-in costs have risen to $48,136 for the softwood lumber products in an average single-family, and $17,220 for the products in an average multifamily, home. These estimates represent a 184 percent ($31,210) and 190 percent ($11,280) increase in single-family and multifamily builders’ lumber costs, respectively, during the course of the past year.
Prices to home buyers have gone up somewhat more than this, due to factors such as interest on construction loans, brokers’ fees, and margins required to attract capital and get construction loans underwritten. For items such as lumber that are purchased and used throughout the construction process, NAHB estimates that the final price will increase by 14.94 percent above builder cost.
The bottom line is that the surge in lumber prices that occurred between April 2020 and April 2021 has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home.
Based on NAHB’s standard priced-out calculations, the $35,872 increase in the average new home price (taken from the latest HUD/Census Bureau new residential sales report) has priced more than 5.5 million U.S. households out of the market, meaning that these households could qualify for a mortgage to buy the average new home before the price increase, but not afterwards. These estimates reinforce the need to find ways to reduce the cost curve for adding much needed inventory to the housing market, particularly as buyers remain frustrated by a lack of available homes for-sale.
The vast majority of new multifamily homes are built-for-rent. In the most recent HUD/Census Rental Housing Finance Survey, the mean ratio of annual rental receipts to market value is 11 percent. This implies that the $12,966 increase in value will increase annual rental receipts by $1,426. In other words, tenants are paying $119 more a month to rent the average new apartment due to the past year’s surge in lumber prices.
Of course, affordability challenges for home buyers and renters with modest incomes are even more challenging than these lumber-driven effects imply, as prices for other building materials are also on the rise. Historically low interest rates have helped on the demand-side of the market, but reasonable prices and stable access to lumber and other building materials are needed on the supply-side.