Cost of Construction Materials: What is happening here?

 

The quick and easy way to explain a shortage of Lumber or Houses’ rising cost could sum it up in one word COVID. The problem with that’s is it’s only a partial reason. It is most likely the catalyst, but it’s not the only issue. Inventory is not just a shortage of Houses. There is also the shortage of; Approved Land with the infrastructure in place to build on; Skilled Labor with the ability to produce a Quality Product. The Materials are not readily available to assemble the Houses. The above graph is for the USA housing market.

The green line on the graph above shows the average price of homes in today’s market. The Orange line shows the Inventory of homes on the market as it continues to drop. The current Inventory is 1.9 months. If we were able to get the Materials, Land, and Labor, we would ease some inventory issues.

If we were to graph the cost of the components it takes to build a house; it would look very similar to the graph above. As the Inventory of any given product goes down while the demand for that product goes up, prices will be driven up. Even with the shortages, Housing starts are up 30% year over year, according to the U.S. Census.

Another issue “It’s also worth noting that durable goods are continuing to increase, as individuals are buying large appliances and furniture. This is also helping increase lumber prices because a lot of these items are shipped on wooden pallets,” said Joe Sanderson, managing director of natural resources at Domain Timber Advisors, an Atlanta-based timberland investment management organization. Little know a bit of trivia having an enormous impact on lumber prices. The pallets produced in the U.S. are currently consuming roughly 50% of U.S. hardwood harvest and a larger percentage of Yellow Pine, the equivalent to 7.6 billion board feet of Lumber. With revenues of about $6 billion in annual sales.

Another and perhaps a more significant cause since housing starts and remodeling were weak in 2019; the Lumber industry rolled back production. Then, when Covid hit, there was a radical momentary drop for about three months. Lumber producers saw this and quickly reducing production again. Have the expectation 2020 was going to be similar to 2019.

“Covid hits and they became very concerned. You saw construction curtailments across the board,” said Paul Jannke, principal at Forest Economic Advisors.

When the demand for Lumber hit, the Mills were not ready. It was a surprise to everyone. The mills did not have the material to produce the needed Lumber.

“After a decade of weak housing starts, the industry adjusted its production to meet that weak level of starts, and now demand is quite a bit higher than that, and so the supply just simply doesn’t exist to meet current levels of demand,” Jannke said.

Soft Lumber used for framing has gone up 73% from Jan 2020 to Jan 2021, and there has been another price increase since Jan.

A recent National Association of Home Builders analysis found that spikes in softwood lumber prices in the wake of the COVID-19 pandemic have caused the cost of an average, new single-family home to increase by nearly $16,000. One high-end custom home builder in Birmingham, Alabama, reported to the NAHB that the price of a lumber framing package on an identically sized home had more than doubled over the past year, from $35,000 to $71,000.

The shortage is not just in Lumber, although that is definitely one of the bigger ones. It is also is a shortage of steel. As well sheetrock and fixtures.

Commodity	12 Mo PC Change	1 Mo PC Change
Softwood lumber	73.0	14.0
Hardwood lumber	14.5	3.2
General millworks	3.6	1.2
Soft plywood products	69.1	7.9
Hot rolled steel bars, plates and structural shapes	4.6	4.7
Copper wire and cable	12.5	3.2
Power wire and cable	10.6	4.1
Builder’s hardware	0.2	0.4
Plumbing fixtures and fittings	1.6	0.0
Enameled iron and metal sanitary ware	3.0	0.0
Furnaces and heaters	1.2	-1.1
Sheet metal products	-0.4	0.0
Electrical Lighting fixtures	-2.2	0.7
Nails	0.1	-0.2
Major appliances	4.6	1.0
Flat glass	3.5	-1.4
Ready mix concrete	1.5	0.6
Asphalt roofing and siding	2.9	0.7
Gypsum products	3.6	2.8
Mineral wool insulation	5.1	2.9

More people want to purchase properties than there are properties to buy.

The only issue now is what are you going to do?

Sit on the sideline ….. watching opportunity go by?

So you can say once it all settles down.

Would’a, Could’a, Should’a…