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Cost of Building a Home Headed Back Up as Lumber Rips Higher to Finish 2021

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17 comments on Cost of Building a Home Headed Back Up as Lumber Rips Higher to Finish 2021

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After hitting record highs near $1700 the price of lumber crashed below $500. 

The respite didn’t last long. Lumber closed December at $1127.70.  

Historically, the normal price would be in the range $250 to $400. That makes lumber about 3 times higher than what builders are used to paying. 

Builders will pass on these hikes as well as the price of labor and other materials. And land prices are out of sight in many areas. 

Not Inflation

Economists say this isn’t inflation. And none of it is in the CPI. 

But if it’s not inflation, what is it? 

Of course it’s inflation, just not consumer inflation. That makes the CPI and PCE numbers less than useless measures of inflation. 

Every Measure of Real Interest Rates Shows the Fed is Out of Control

As noted on December 29, Every Measure of Real Interest Rates Shows the Fed is Out of Control.

Two of those measures, especially PCE, the Fed’s preferred measure are ridiculous. 

My alternate measure, a housing-adjusted CPI, is at -9.31% making real interest rates -9.23%

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Bungalow Bill
Bungalow Bill
2 years ago
Didn’t Biden just double down on Trump’s lumber tariffs? I am sure that’s going to show them… LOL
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xbizo
xbizo
2 years ago
Definitely need to consider food, housing, healthcare, childcare and education costs as the bedrock of inflation estimates.  All of these are really resistant to price decreases because they are domestic services, and we always want the best-of-the-best for these.  While the stuff we offshore goes down in price, the services provided locally keep going up.
The issue for inflation in my mind, taking the lumber example, is that inflation should not be figured on spot price, but on the expected price after exogenous events have run their course.  The expected price for next year.  Good luck with that.  Best we can do is trend the data, but that is backward looking.  The issue is about expectations for next year.
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shamrock
shamrock
2 years ago
Lumbar is not in CPI?  Maybe just indirectly as part of some finished products?
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Eddie_T
Eddie_T
2 years ago
Reply to  shamrock
Quoting Jerome Powell, “Houses are an asset.”
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TechLover1
TechLover1
2 years ago
Reply to  Eddie_T
They indeed are. Especially for landlords.
Rents are on a tear and this is starting to show in CPI now. This will show up more in CPI in the next six months.
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Eddie_T
Eddie_T
2 years ago
Reply to  TechLover1
Owners equivalent rent is a very poor metric imho. It’s just one more way to keep inflation numbers skewed low.  I know rents are going up. I own rental units and a boat storage business. 
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TechLover1
TechLover1
2 years ago
Reply to  Eddie_T
I own rentals as well and rents are definitely going higher.
OER may be a flawed metric but I am not sure what is a good metric. Monthly mortgage payment? What about appreciation? e.g. I lived in a home for three years and paid low mortgage because of the low APR. On top of that I made more money in appreciation on sale (after costs associated in selling) than I had paid in mortgage during the three years of ownership/residence. Should my OER (or its equivalent) be zero or negative? What happens when housing goes down in value? Housing is a mix of asset and utility for owner occupied properties. I don’t believe there is an easy way to figure this out.
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StukiMoi
StukiMoi
2 years ago
Reply to  Eddie_T
As are socks, if people are banned from knitting new ones.
In reality, houses are a roof over ones head. The rest, is 100% pure theft. By the likes of Powell. For the benefit of idle leeches. From productive, competent people. Without any exception, whatsoever.
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Eddie_T
Eddie_T
2 years ago
I think the real odds of a 2022 recession are easing, and unless I’m wrong about that and unemployment spikes, I think the housing market will keep climbing for some time. Not even modest interest rate increases will put out the fire. Especially not in the hot markets where the best job prospects are.
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TechLover1
TechLover1
2 years ago
Reply to  Eddie_T
Agreed.
White collar salaries are on a tear. Will probably continue for some time unless the bottom falls out of the economy.
These are the folks who buy houses especially in expensive markets. Poor and lower middle class rent.
So home prices will either continue to rise in desirable locations or at best stagnate if the rates on the long end actually rise modestly.
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Casual_Observer2020
Casual_Observer2020
2 years ago
Reply to  Eddie_T
The biggest reason housing hasn’t collapsed is the buyers at the top in expensive markers. Most of those buyers are not even people living in the house. Cut off that flow and housing is toast even with a normal economy. Few have ever looked at if the buyers at the top are actually doing anything with the houses they buy other than laundering money. Housing is the biggest money laundering vehicle there is. I think more of the higher end housing markets are turning into what happen in Vancouver after the Chinese government said anything above 50k in a Chinese bank will be taken by the government. 
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thimk
thimk
2 years ago
Biden doubled tariffs on Canadian lumber back in November .  “trade war are easy to win” – good one orange man .  
Tariffs on Chinese Imports Have Accomplished Approximately Nothing .
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1-shot
1-shot
2 years ago
This is absolutely inflationary and it’s definitely going to push home prices and rents higher – it already has.
Buyers in competitive markets will just pay more if they can, and if they can’t they’ll have to stay put or rent. Either way housing is getting more expensive before it gets cheaper … Not a pretty picture
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TechLover1
TechLover1
2 years ago
Reply to  1-shot
Agreed. Another aspect is that salaries of white collar workers is on a tear. These are the people who actually buy.
Rent is on a tear as well. This puts a lot of young people in a position of either paying high (and increasing) rents or lock a reasonable payment (30 yr fixed rate). Even if they pay a higher price for the house, they will still pay per month less than the rent and the payment will more or less remain stable.
This does hinder mobility and may hurt career growth and mobility for some.
Some will of course choose to just pay high rent which will continue to go even higher.
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Six000mileyear
Six000mileyear
2 years ago
Just as falling oil causes job losses in the oil industry, rising lumber prices can cause job loses in construction. Home owners will get sticker shock and change their tune to, “If it ain’t broke, don’t fix it.”
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Zardoz
Zardoz
2 years ago
Plenty of profit left… what people will pay in borrowed money for it, and how much they can borrow, are the only fundamentals driving sale price.
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TechLover1
TechLover1
2 years ago
Reply to  Zardoz
Most people buy a house looking at their monthly payment. They are not really looking at the purchase price.
When and if interest rates rise significantly, it will be a shock to many that they can’t sell without taking a loss. FWIW, long term interest rates may not rise significantly for years.
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