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Will New Lumber Prices Lower Home Prices?

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Economics

Will New Lumber Prices Lower Home Prices?


July 16, 2021
new framed house construction
Photo: ungvar | stock.adobe.com

Now that lumber prices have fallen near pre-pandemic levels, the cost of constructing an average single-family home is now cheaper, but builders likely won’t drop their prices. July lumber futures reached $599 per thousand board feet at the end of the day Tuesday, helped by fewer homeowners spending time on DIY projects and more on dining out and travel. Realtor.com chatted with KB Home and Lennar to see if either would lower home prices. KB Home Chief Executive Jeffrey Mezger said it would depend on the competitive landscape in each city, but the builder will likely not lower prices and instead receive higher margins.

Rival Lennar Corp. said that it too expects higher margins during the current quarter on an average sales price of between $420,000 and $425,000, up from $414,000 in the fiscal quarter that ended on May 31 and from $367,700 a year earlier. The home builder is saving about $1,700 on its average-size house for every 10% that lumber prices decline, co-CEO Jon Jaffe told investors earlier this month.

It is a different story at Home Depot, which cooped-up Americans flocked to during the pandemic. The retailer has lowered its lumber prices in recent weeks. Eight-foot studs that were offered in Ohio stores for $7.48 on June 21 were priced at $6.25 on Tuesday. In Utah, pressure-treated two-by-six boards for outdoor use fell to $9.37 for an 8-foot length, down from $13.37 three weeks ago.

Retail prices remain high relative to historical levels, but the cuts show the decline in futures and mill prices is trickling down to shoppers.

Dealers, traders and price forecasters say sticker shock and the reopening economy have hurt retail lumber sales this summer. The bursts of demand from restaurants and bars building patios for outdoor seating are also in the rearview mirror. But the lower prices are beginning to beckon buyers, especially developers of big projects, like apartment buildings, which shelved construction plans when prices reached unprecedented levels.

“There were so many multifamily projects on the table that were ready to be built at $700 and got tabled,” said Matt Layman, a market analyst and consultant who publishes Layman’s Lumber Guide. “Now they’re back in budget.”

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