Home builders say that the affordability of new homes will rest on the government’s ability to help reduce the cost of building materials such as lumber.
The skyrocketing cost of lumber and other materials has pushed new home prices to record highs. At the end of March, the median sales price of a new built home in the U.S. rose to $330,800, according to the National Association of Home Builders.
The cost of lumber has risen by more than 300% since April 2020, and the price of other materials such as steel, gypsum and concrete has also been climbing fast, builders say.
NAHB Chief Economist Robert Dietz said in the group’s Eye on the Economy newsletter last week that the rising material prices are “significantly driving up prices for single-family homes and apartments.”
“Combined with expectations of rising interest rates, these higher prices place additional pressure on housing affordability, which continued to decline in the first quarter,” he added.
In a recent post on the NAHB’s Eye on Housing blog, economist David Logan noted that the price volatility of steel mill products has also worsened. In the last three months, steel prices have risen by 22%.
Logan noted that other building materials are becoming more expensive too. Gypsum products, which are used as a fluxing agent in plaster, cement, tiles and blocks, have seen prices go up by 12.5% in the last year. And there is “unusual volatility” in the price of ready-mix concrete, which has increased in every U.S. region.
The more expensive building materials have added almost $36,000 to the average cost of building new home, and $13,000 to the cost of a multifamily unit, Logan said. As a result, builders are having to raise their prices to remain profitable. Some have even started adding escalation clauses to their sales contracts in order to protect themselves from further price increases, and others have been stockpiling materials as much as possible.
The added costs are of course passed on to consumers, and economists fear that lower and middle-income buyers are becoming priced out of the market for new homes. And those buyers aren’t helped by the fact that prices for existing homes are surging too as a result of extremely low inventories.
The NAHB has pushed lawmakers to find solutions to the problem, and the call for help has been heard. Last week, four bipartisan lawmakers told the Senate that there’s a desperate need for the government to do something to tackle rising lumber prices. They suggested either boosting production or reducing or ending tariffs on Canadian lumber imports into the U.S., which are often cited as the main reason why prices are so high.
Senator Jerry Moran (R-Kan.) told the Senate that the high lumber prices were putting the American dream of homeownership out of reach of thousands of potential buyers, and that it was disproportionately affecting lower-income families.
“At a time when residential home building is booming, it is essential that home builders and consumers have access to the materials they need at competitive prices,” Moran said.