Joanna is CEO of Quartz Properties, a residential real estate development firm working to make the home buying process simple and enjoyable.
The effects of the pandemic have changed every industry. Many are suffering, some are booming, but all have had to pivot in some way to manage supply chains, worker availability and economic stressors. Low interest rates and a housing shortage in many areas of the U.S. have catalyzed a real estate surge.
Last spring, the housing market fell sharply when the coronavirus was named and lockdowns began. The Covid lull was short-lived, however, as the home building market continued to grow, and by the end of 2020, resale homes within the United States were exchanging at their highest level since 2006.
The current demand for new houses, specifically in more rural settings, coupled with a well-documented lumber shortage has resulted in high build prices that have the potential to slow trends. The spike in lumber prices alone has added more than $36,000 to the build cost of the average new single-family home. Costs for other building materials, including cement, are also elevated according to the National Association of Home Builders, leading to the potential to price home buyers out of the market completely.
Why is there a lumber shortage?
Major lumber mills cut back on production during the pandemic due to concerns that the economy would worsen. Lack of protection for workers in factory settings due to the virus was also a concern, with many operating on a rotating schedule and at decreased capacity to provide safe conditions during the pandemic.
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Instead of decreased demand, however, there was an uptick in home improvement projects during lock-down orders. In addition, new construction was able to continue at near pre-pandemic levels as well since the construction industry in many states was seen as essential work.
The chief economist of the National Association of Home Builders, Robert Dietz, reportedly stated in February that about 81,000 new homes across America were experiencing a delay in construction due to the rising cost of building materials. Dietz then called on the government to find “immediate remedies” to the issue.
Lumber is, of course, a chief building material used in the framing of new homes. The current 250% annual increase in the cost of lumber is a huge cause for concern, resulting in a threat to housing affordability across the nation.
Is there a bigger picture?
The lumber shortage is just part of the litany of insufficiencies in today’s market. The price of all building materials, as well as many resources we use every day, are in constant fluctuation. But the Covid-19 pandemic added increased emphasis on shortages due to factory closures, logistical issues and lack of labor force. With construction and real estate specifically, shortages can lead to delays in projects, which adds additional costs into the mix.
Many government entities that oversee building projects and work to issue permits are also experiencing staff shortages, leading to further obstructions. Finding land to build on has also been a huge hurdle. Developers are tapping out their current supply of land much more quickly than anticipated, and build-ready land is not readily available. It typically takes a year or more to clear the obstacles required to turn raw land into a new home development, and large home builders are already behind current needs. As fewer and fewer build-ready lots become available, the demand for new home construction has been increasing, not decreasing, during this same time frame.
Will people still buy at higher prices?
Historically low interest rates are continuing to drive the purchase of homes, even with higher costs, and the Federal Reserve is expected to keep interest rates low. For the great majority of home buyers, and especially Millennial buyers who are just entering the market, cost per month is more important than overall purchase price. That said, if mortgage rates do remain low, the market will stay steady, even as home prices continue to rise.
The coronavirus pandemic changed so many facets concerning the way we live. From people looking for more space for home offices and remote learning to lumber and land shortages in certain areas, Americans will continue to be impacted.