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The rising cost of lumber in America

by Brad Cartier, posted in Stessa News released its Housing Market Recovery Index last week, noting that for the week ending August 1, there was a 0.1 point increase, bringing the index 3.8 points above the pre-COVID levels. The West and Northeast continued to lead this strong recovery, the greatest city-level bounce back in New York, Las Vegas, Seattle, Boston, and Philadelphia.

The report summarizes these findings: “Real estate activity in the U.S. has regained its strength and continues to hold an upward trajectory as we enter the middle of the summer.”

Similarly, new data from Redfin last week gave us some interesting insights on home prices. Specifically, home sale prices increased 11% year-over-year, the largest increase since 2014, and asking prices were up 14% year-over-year. Also, the sale-to-list price ratio (compares the final sale price to the list price) rose to 99%, which is the highest level since 2012.

Home sale prices hit highest level since 2014

Source: Redfin

According to Redfin, new listings are also down, contributing to the supply squeeze and upward pressure on prices.

Zillow also released their own home sale findings, noting that most metros saw a deceleration in sale price between April and May, but that median prices were up 4.6% in May to $263,408. Zillow notes that “A resurgence of more-expensive listings, low price cuts, and record-low days on market are all expected to sustain upward pressure on sales prices.”

Alex Roha of Housing Wire reports on a Fannie Mae survey that found that 53% of Americans believe it’s a good time to buy a home, an 8% decrease from June, and 45% thought it was a good time to sell, a 4% increase since June. These reports suggest we are still in a seller’s market.

As an added bonus, The Wall Street Journal (subscription required) released an interesting article on the value of homeownership, titled Why Your House Could Be Your Best Performing Asset Class.

“The great reshuffling”

“I believe we are at the dawn of a great reshuffling…I’m sure I don’t need to spell it out for you because we are all living it, spending an average of nine hours more per day at home. Zoom meetings are changing the way families think about space and privacy. Home offices are in high demand. Backyards are more desirable than parks and gyms. Work-from-home policies are eliminating the commute for many. There’s an endless list of considerations.” That was Zillow CEO Rich Barton, reported by CNBC. Barton is discussing something regular readers of this newsletter know has been coming: a shift away from urban settings, and more remote employment.

Jeff Rose of Forbes added to the conversation, noting this week that data from May shows that out of 20,000 ZIP Codes, urban ones had a median improvement of 87 spots, suburban ones at 404, and rural ones jumped 846 spots. Note that this data doesn’t represent actual sales, but pageviews and the number of days a listing is active.

Dana Anderson of Redfin also reported last week on a survey conducted by that site that found that 25% of homebuyers are moving, or moving sooner than planned, because of COVID-19. The reason? Spending more time at home and working from home. You can read between the lines as to what this actually means, but it has certainly been good for less densely populated areas.

Homebuyer preferences changing in light of COVID

Source: Redfin

As wood as gold

The cost of materials is something that affects all real estate investors, particularly those who build or flip. The past few weeks have seen some interesting developments in building materials and construction starts.

Let’s start with soaring lumber prices and recent commentary from the National Association of Home Builders (NAHB). “Due to insufficient domestic production and tariffs on Canadian sources, the price of lumber has staged a staggering increase in recent months, rising 80% since mid-April to an average price of $627 per thousand board feet.”

Keep in mind that this will put downward pressure on construction, slowing it and reducing supply, and ultimately push up prices.

Ryan Dezember of The Wall Street Journal (subscription required) picked up on the lumber story as well, noting that the current building boom was not anticipated by sawmills, of course exacerbated by COVID-19 shutdowns as well.

Lumber prices in the U.S. hit record levels

Source: WSJ

Dezember continues, “An estimated 40% of North American lumber production was curtailed in March and April as millions of people lost their jobs. Futures hit a four-year low April 1. They have been rising ever since. By July, prices had returned to their pre-pandemic level and have subsequently added another 47%.”

Don’t expect the demand for this critical construction material to slow any time soon as construction starts continue to climb, and we begin to experience what Rich Barton refers to as “the great reshuffling.”

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