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Why Are Lumber Prices So High Right Now? And Will They Go Down in 2022?

The surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home

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Lumber prices are surging, and it's making an already tight housing market even more lean.

The surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home, according to the National Association of Home Builders.

Why are lumber prices so high?

According to CNBC, lumber prices are skyrocketing for various reasons beyond just high demand from homebuilders and remodelers. Lumber tariffs had prices already rising a year ago, but then when the pandemic hit, production shut down. The expectation was that housing demand would dry up for a long time. But instead, after a brief pause, it came roaring back. Homebuilders were caught off guard, as were lumber producers.

"Clearly, increasing the cost of imports via tariffs does not help the situation," said Robert Dietz, chief economist for the National Association of Home Builders. "We need to do everything that we can to increase domestic supply, including producing more domestic lumber, as well as resolving the trade dispute. It is matter of housing affordability."

What's fueling this?

As the housing market gets leaner, potential buyers are turning in record numbers to new construction, but several factors are making those homes pricier than ever before.

First is a major shift in the market's composition due to the record shortage of existing homes available. About 1 in 4 homes for sale are now newly built, the highest share ever. Historically new homes make up about 1 in 10, but fierce buyer competition is behind that shift. Prices for new and existing homes are at record highs.

How is this affecting builders?

Some builders have said they are slowing production in the face of exorbitant costs, but single-family housing starts were up 41% in March year over year, according to the U.S. Census. Builders are clearly trying to ramp up production as fast as they can to meet soaring demand.

"We just have no supply in either the new home or resale market today," Sheryl Palmer, CEO of homebuilder Taylor Morrison, said in an interview on CNBC's "Worldwide Exchange."

Palmer said she has seen demand rise across all geographies and all segments of the market, particularly first-time buyers and 55+ buyers. Builder costs, however, are out of control, she said.

"We have seen, over the last four or five months, what I have never seen in my career before, is lumber to move to the level it has," said Palmer. "We are very anxious to see full capacity back domestically. I think if we can get the full supply on, we can get lumber to level out a bit."

Is it just lumber that's seen a price increase?

No, it's not just lumber. Prices of gypsum, which is drywall, are up nearly 7% from a year ago.

Steel mill product prices are at a record high, up nearly 18% in March year over year. It's used for beams, sheet metal products and wiring.

The price of copper also set a record high this month and is 27% year to date.

And then there is land. The price per single lot is up 11% this year compared last year, because demand is so high and supply is low. New lot supply is down 20% from a year ago, according to Zonda, a real estate data and advisory firm.

Will lumber prices go down in 2022?

Industry executives told CNN that they eventually expect lumber production to catch up with demand, resulting in a drop in lumber prices within the next 18 months.

"The mills are coming back online. I think we're past the worst of it in terms of supply availability," Jeffrey Mezger, the CEO of KB Home, told CNN.

Copyright CNBC
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