- Lumber costs have skyrocketed by almost 200% since the pandemic began.
- After factories shut down last year due to the pandemic, the demand for new houses outstripped supply.
- Home builders are building fewer homes and intentionally raising prices to smooth out the difference.
- See more stories on Insider's business page.
Many people bought new homes during the pandemic, spurred on by low mortgage rates, the ability to work from home, and of course, needing your own space amid a raging global pandemic.
But the laws of supply and demand weren't asleep at the same time. Lumber got really, really expensive, adding to the price of any new home.
The National Association of Home Builders (NAHB) found that the price of an average family home has increased by $24,386 since April, largely because of an interruption to raw materials when lumber mills shut down at the start of the pandemic due to safety reasons. After they reopened, lumber prices have spiked by nearly 200%. Now it seems homebuilders are turning this price increase to their advantage.
New data from Zonda, a national housing data platform, found that at least 70% of builders are intentionally raising home prices in the hopes that will slow demand, allowing for more time to acquire lumber and other materials. They're also capping the number of sales, to bring orders and production capacity in line with each other.
-Ali Wolf (@AliWolfEcon) March 23, 2021
The data showed that from November to March, builders increasingly adjusted their sales strategies to account for diminishing supply in materials by building a set number of homes each month.
"Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month," NAHB Chairman Chuck Fowke told real-estate news site HousingWire.
Fowke said that lumber prices should decline as COVID-19 vaccines continue to be rolled out, which would allow for more lumber mills to safely reopen.
The buyer traffic Fowke mentioned is largely caused by mortgage rates being at record lows in December, and given the soaring lumber costs, housing costs are seeing record increases, as well. A new report from Redfin - a real estate brokerage- found that the average home sale price hit an all-time record in March, increasing 16% year-over-year t0 $331, 590.
And home offers are also coming in at record numbers above asking price - last week, Redfin reported that about one in three homes sold for more than the asking price in February, which has concerned experts like Redfin Chief Economist Daryl Fairweather.
"When the pandemic is over, purchasing a home is going to cost much more than ever before, putting homeownership much further out of reach for many Americans," Fairweather said in a statement. "That means a future in which most Americans will not have the opportunity to build wealth through home equity, which will worsen inequality in our society."
On March 12, 35 housing organizations joined the NAHB in urging the Biden administration to find a solution for the high lumber costs and ensure equitable housing for Americans.
They said: "Housing and construction can do their parts to create jobs, boost the economy to its pre-pandemic strength, and provide safe and affordable housing for all Americans, but in order to do so the federal government needs to address skyrocketing lumber prices and chronic shortages."
The situation is dire. Insider's Taylor Borden reported on March 23 that the number of homes for sale could run out in just two months, and experts expect inventory to remain at record lows.