How much does a new, custom-built home cost?
The one building material that’s the lifeblood home construction: lumber.
Because of world events last year, commodities markets and international trade were disrupted in a way not seen before. Prices on everything -- from groceries to construction materials -- went up quickly and stayed that way.
For custom home builders, an increase in price for any construction material should raise an eyebrow. Ultimately those increases make their way to the future homeowner, making the dream of custom homeownership less affordable and more challenging to obtain.
So how do you lessen the impact of increasing material prices?
In new construction, finding strength in numbers and construction efficiencies are two ways to put pressure on rising costs
Lumber Prices 2020: What Happened?
Why are lumber prices so high?
The short answer: COVID-19 coupled with simple economics.
Once the pandemic hit, entire supply chains were crippled -- lumber included.
Across the country, logging operations and sawmills were shut down or drastically reduced operations for many months, creating a lumber shortage. Imported lumber and timber that supplemented domestic production became hard to come by as international trade came to a near-standstill.
The pandemic housing boom compounded matters more. Many who lived in crowded urban areas looked to leave, while existing homeowners found they needed bigger spaces. Very quickly, the real estate market became a seller’s dream.
Those who turned to new construction for their next home found themselves competing for a limited supply of building materials. As the laws of supply and demand dictate, prices for a limited material increased significantly -- more than doubling.
At their peak this past spring, a study by Fortune Magazine found that lumber prices in 2020 were around 280% higher than pre-pandemic levels.
Timber! Down Go Lumber Prices in 2021?
Lumber prices are a sore spot for the custom home builder and the future homeowner. Many are wondering, “When will lumber prices go down?”
The good news -- there is hope. The lumber price forecast for 2021 remains promising.
While lumber is still responsible for driving up new home construction costs, the material’s prices are starting to drop, and drop quickly. In mid-June, the cash price-per-thousand board feet of lumber dropped by 27%. Futures markets for July peg lumber prices to drop by another 47%.
Though good news for new home construction, it’ll be some time before those decreases make their way to the consumer. Lumber mills and timber harvesting operations are just returning to full capacity -- it will take time to rebuild a steady supply chain. What’s more, those who held off on projects are likely to pick up where they left off, continuing to drive demand for lumber.
Reducing the Impact of Lumber Prices Regardless of World Events
As the pandemic showed, industries can change in an instant. Entire established markets and supply chains can come to a near-halt. And people’s priorities change.
While there’s no way to insulate an industry from the effects of a global event, there are ways to reduce their impacts. For custom home builders, becoming an associate of a materials supplier with an established network and efficient construction method brings some stability to materials costs.
Affiliating With a Building Materials Supplier
Why does partnering with a building materials supplier help mitigate costs? ?
Strength in numbers.
With a collective of construction companies working through a single source, purchases of commodities such as lumber are made in bulk.
Like prices going up because of a limited supply trying to meet an increased demand, bulk purchases take on the laws of economics in a different way. Items bought in smaller quantities require more resources -- whether it’s manpower or packaging materials -- to make their way from the manufacturer to your doorstep.
Purchasing items in large orders drives down the cost per unit -- even if it’s by a few pennies -- as there’s ultimately less work and other materials, such as packaging, involved. In bulk purchases, pennies saved add up quickly to a noticeably lower price.
Home Construction That’s Efficient
Another way custom home builders can control construction costs is by building homes using a process rooted in efficiency. Panelized construction is designed to do just that.
Through panelized construction, a home’s wall panels and other structural components are built off-site in a factory. In creating the parts of a home in a factory setting, there are controls over the amount of materials used and how far they go.
Materials are ordered in exact quantities and assembled to specific measurements, eliminating waste. In other words, there isn’t much useless scrap left over from that bulk order of lumber. The client only pays for the materials actually needed to create their next home.
Once delivered to the construction site, a panelized home goes up quickly, with no need for additional materials to assemble it.
Creating Some Immunity to Lumber Price Spikes
While there’s no way to predict the impact an event will have on lumber prices and home construction costs, there are two important steps your home building company can take to shelter itself.
Aligning your home building company with an established material supply increases value for you and your customer. And using an efficient building method ensures you’re not using more than you have to.
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