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Builders say cheaper lumber could relieve rising home prices

By Mike Wheatley | November 8, 2020

The cost of new homes has been steadily climbing due to rising lumber prices, but a new report says that relief could now be on the way.

That’s because lumber futures are showing signs of falling, according to builders recently surveyed by Zonda, a research firm formerly known as Meyers Research.

That could be a sign that the price of lumber could moderate in the coming months. For now, there has been no sign of prices cooling off, with 56% of builders saying they are yet to see lumber prices go down, though they acknowledged that there is often a one or two month lag.

Ninety percent of builders reported raising their base prices in mid-October compared to mid-September. Fifty-seven percent of builders said they increased prices by $3,000 and $5,000.

The National Association of Home Builders has blamed record-high lumber prices for driving up the price of new homes. It said recently that these costs have added around $16,000 to the cost of a median sized 3-bedroom family home since April.

With prices of new homes climbing, the issue of appraisals is becoming more important too, said Zonda’s chief economist Ali Wolf in the report. He said 42% of builders in October admitted that their new homes aren’t achieving high enough appraisal values, which is considerably more than the number of builders who reported low appraisals just one month earlier.

Low appraisals mean that buyers often aren’t allowed to borrow the full amount required to buy the home, and so it means they have to pay more upfront or cancel the deal.

Overall though, the biggest concerns for builders heading into 2021 are more likely to be around issues such as lot shortages, land prices, new-home affordability, the aftermath of the election, and building material costs, the report found.

“We should expect to continue seeing an elongated time from start to completion of new homes going into 2021,” Wolf says in the report. Fifty-seven percent of builders foresee supply disruptions and 29% predict labor shortages will continue to press on timelines.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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