How much does a new, custom-built home cost?
The one building material that’s the lifeblood home construction: lumber.
Because of world events since early 2020, 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 home ownership less affordable and more challenging to obtain.
With commodities markets characterized by drastic fluctuation, both builders and future homeowners may be wondering, “Will lumber prices go down in 2022?” or “How do I 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: What’s Going On?
Why are lumber prices so volatile?
A few interconnected reasons that are rooted in the COVID-19 pandemic:
- Reduced lumber production
- A housing boom
- Supply chain disruption
1. Reduced Lumber Production
Once the pandemic hit, entire supply chains were crippled. Raw materials of all sorts became harder to come by -- 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 laws of supply and demand kicked into high gear. With an imbalance of available lumber against consumer demand, lumber prices skyrocketed. Lumber price charts show prices spiking by about 280%, or more than doubling with prices peaking at $1,645 in May 2021.
2. A Housing Boom
The pandemic housing boom compounded matters more. Throughout 2020 and 2021, the real estate market was a seller’s dream. Many who lived in crowded urban areas looked to leave while existing homeowners found they needed bigger spaces. With a limited inventory of homes for sale, house prices skyrocketed.
Those who turned to new construction for their next home found themselves competing for a limited supply of building materials.
3. Supply Chain Disruption
Though lumber production had mostly resumed both domestically and abroad, the supporting supply chain never fully recovered.
Both in the U.S. and internationally, ports and delivery services found themselves short-staffed or still operating under restrictive public health guidelines. With limited workers, the ability to process goods at pre-pandemic level was nearly impossible. Shipping prices -- from container costs to transit expenses -- increased to make up for budget shortfalls.
Compound matters more -- consumer demand hasn’t let up either. Again, the laws of supply and demand apply, keeping prices well above where they were 2 years ago.
Timber! Will Down Go Lumber Prices in 2022?
Lumber prices remain a sore spot for the custom home builder and the future homeowner.
But after almost two years, the question remains: Will lumber prices go down in 2022?
It’s tough to say.
If the state of the global economy has revealed anything about itself since the pandemic’s start, it’s that it’s fragile and needs more time than previously thought to recover.
Throughout 2020 and 2021, lumber prices have been all over the map, increasing and decreasing rapidly. They haven’t dipped below where they were at the start of 2020.
Limits on raw materials supply and the ability to move products will keep the scales of supply and demand unbalanced and prices high.
While the housing market appears to be stabilizing -- according to an October 2021 housing report by Realtor.com -- demand isn’t expected to change much in 2022. Homeowners will likely still find themselves weighing the costs of a more expensive housing market against those associated with new construction.
Reducing the Impact of Lumber Prices Regardless of World Events
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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