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Wood is cheap, but building or renovating a house is not

Wood is cheap, but building or renovating a house is not

Remember how early in the pandemic the price of almost everything related to housing skyrocketed? Now that people are back on the move, interest rates are high, and supply chains have loosened up, those lumber prices have plummeted back down to earth.

People stuck at home started spending money on their homes, which drove up the price of building materials, especially lumber. In addition, people moved to new places where they could work from home, so new home construction skyrocketed, which only increased demand.

But all the other things that go into building and renovating homes haven’t followed the price trend of lumber. This summer, it’s all about SPF — not sunscreen, two-by-fours. It stands for spruce, pine and fir, and it’s the benchmark for lumber prices in the United States.

In 2021, as demand soared and supply chains were in disarray, the price peaked at $1,600 per 1,000 board feet, said Paul Jannke of Forest Economic Advisors.

“Prices are currently around $355, so lumber prices are extremely low right now,” Jannke said. “Those record high prices that we saw in the second half of 2020 through the first half of 2022 led to extensive investment, with mills investing in existing capacity, new capacity.”

What happened? A combination of weaker new construction and renovation of homes, plus a larger wood supply.

Despite lumber being relatively cheap, building material costs are up 30% from 2019, meaning homes are still expensive, said Robert Dietz, chief economist at the National Association of Home Builders.

There’s a lot involved in building or renovating a home, says Carlos Martín of the Harvard Joint Center for Housing Studies.

“There are a lot of other materials that have gone up in price,” Martin said. “A lot of plastic, plastic-related products. There’s some variability with steel.”

In addition, electrical equipment such as transformers, as well as air conditioning and heating components, are in high demand due to government tax incentives and rebates for green energy improvements.

Townhome construction rose 6 percent last year, Dietz said, and now represents a multi-decade high, nearly 1 in 5 new homes. The smaller the home, the fewer building materials it requires. All of these higher costs are contributing to a shrinking trend, he said.

“The size of new homes has actually declined in recent quarters as builders adapt to an environment where housing affordability is a real challenge,” Dietz said.

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