It’s a headline builders and consumers have read dozens of times since spring of 2020: lumber prices are skyrocketing. But how are other builders handling cost increases? The National Association of Home Builders asked builders how they are dealing with prices and how long lumber prices are guaranteed in the latest iteration of its NAHB/Wells Fargo Housing Market Index. The top three ways builders are coping with rising lumber costs are to include price escalation clauses in contracts (47% of respondents), pre-ordering lumber (29%), and obtaining lumber price guarantees from suppliers (22%).
Although price escalation clauses are by far the most common response to rising lumber prices, in addition at least 10 percent of the builders reported pre-ordering lumber, obtaining lumber price guarantees from suppliers, pausing before starting to frame the structure, otherwise delaying building or sales, and including shared price clauses in sales contracts.
Shared price clauses resemble price escalation clauses that tie the final house price to the price of building materials. The difference is that, in the typical shared price clause, the home builder agrees to absorb part of the material price increase, with the home buyer covering the rest.
Among builders who have been successful in locking in lumber prices by obtaining price guarantees from suppliers, 42 percent reported that the prices were typically guaranteed for 15 to 29 days. Also fairly common (reported by 33 percent) were lumber prices guaranteed for 30 to 59 days. The median length of the price guarantee was 28 days.