BEHIND THE SCENE
According to an article by NAHB (National Association of Home Builders), even though the price of lumber has fallen roughly 50% over
the past few months, lumber prices paid by builders have only declined a fraction of that amount. The reason? There is a long lag time in the lumber supply chain before price reductions trickle down to builders. Which means, builder lumber prices for home builders and remodelers remain much higher than one would think.
In May of 2021, lumber prices began to fall and the media began to cover it extensively. Which gave those in the new home market cause to rejoice. However, their joy was short-lived because the price of lumber packages quoted to builders still held at record highs. Which basically means new homes prices haven’t gone down. Or, at least they are not falling as rapidly as the lumber prices.
This is primarily due to dealers’ inventory carrying costs, as well as the potentially large differences between the price at which builder inventory is bought and sold.
Remember retailers and wholesalers need to buy low and sell high. Translation: Things can get very risky, very fast when lumber prices are falling rapidly. Thus, suppliers’ inventories tend to get tighter during periods of falling prices. All this combined makes for a long lag time between less expensive lumber and less expensive new home price tags.
So when will falling lumber prices reach builders?
Home builders and remodelers will begin to get price relief once mill prices have stabilized and/or decreased for an extended period. Remember prices must fall long enough to materially lower a supplier’s average costs after a run-up. The consistency of prices decreases and whether or not the prices have stabilized at the lower level will determine how lower lumber prices will affect builders. In short, it may take weeks to months for builders to be able to transmit lower prices to customers.
Now there’s a lot more to it than this, but that is what is happening in the new home builder environment in a nutshell. Or a paragraph, if you must.
I’m Suzanne Athey, owner and founder of Team Athey & Remarkable Property Management. I hope you found this blog post on lumber prices informative. If you’d like to know more, call me at 469-916-1222, or email me at suzanne@teamathey.com. I’d love to visit with you and answer all your real estate questions.
