Led by OSB, Lumber Products are Now Adding $30K to House Price, $92 to Rent

Facebooktwitterpinterestlinkedinmail

According to NAHB’s latest estimates, changes in prices for softwood lumber products that occurred between April 17, 2020 and July 08, 2021 are enough to add $29,833 to the price of an average new single-family home, and $9,990 to the market value of an average new multifamily home. The increase in multifamily value, in turn, translates to households paying $92 a month more to rent the new apartment.

The increases are somewhat less than the April 2020-April 2021 effects NAHB reported three months ago (a $35,872 increase in house price and $119 increase in monthly rent).  At first glance, the latest estimates might seem high relative to recent declines in framing lumber prices, but there are a couple of factors to keep in mind.

First, even after the recent declines, framing lumber prices are still roughly twice as high as they were in April of 2020.   Second, framing lumber is only one of the softwood lumber products used in the average home.  NAHB’s estimates also include plywood, oriented 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.  Estimates developed from the Builder Practices Survey conducted by Home Innovation Research Labs show that the average new single-family home uses more than 2,200 square feet of softwood plywood, and more than 6,800 square feet of OSB.

Moreover, unlike framing lumber, prices of these items have not declined substantially in the recent past.  In fact, since  April of 2020, the price of softwood plywood has increased by more than 200 percent, and the price of OSB has gone up by nearly 500 percent.

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

Currently, based on Random Lengths prices reported on July 08, 2021, the costs have risen to $42,882 for the softwood lumber products in an average single-family, and $14,631 for the products in an average multifamily, home.  These number represent a 153 percent ($25,955) and 146 percent ($8,691) increase in single-family and multifamily builders’ softwood lumber costs, respectively.

Prices to home buyers go 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.  As explained in NAHB’s recent study on regulatory costs, for items used during the construction process, the final home price will increase by 14.94 percent above the builder’s cost.

The bottom line is that the OSB-led changes in softwood lumber prices that occurred between April 2020 and July 2021 have added $29,833 to the price of an average new single-family home and $9,990 to the market value of an average new multifamily home. Based on the average rent-to-value ratio in  most recent HUD/Census Rental Housing Finance Survey, the increase in builder cost and market value for a multifamily structure means tenants pay $92 more a month to rent the average new apartment due to the change in softwood lumber prices.

Moreover, even before the latest round of increases, many households at the lower end of the spectrum were being squeezed out of the market for new homes by relatively high prices.



Tags: , , , , , , , , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: