DALLAS — Homebuilders who are scrambling to meet a swell of buyer demand are hitting a wall.
Prices of lumber and other wood products have soared in recent months, eating away at their profits and causing a further rise in new home prices.
Builders and industry analysts say that costs of some building materials have doubled and tripled from a year ago, thanks to increased demand and supply constraints.
“Lumber is in flux so much right now it may cost you an extra $50,000 to build a house,” Dallas homebuilder Jeff Dworkin said. “A 2-by-10 framing piece that cost me five bucks a year ago is now costing me over $10.”
Dworkin said the lumber framing on his latest house is costing him 80% more than a similar home he just sold. “We are trying to lock in our lumber prices for 30 to 60 days, and we are lucky to get that,” he said. “Typically this time of year lumber costs come down because the cold weather slows down construction. But we have yet to see that.”
Robert Dietz, top economist for the National Association of Home Builders, said the surge in lumber costs is affecting builders nationwide.
“Pricing is back near the highs of mid-September, which at the time was the result of a 170% spike over the pricing in the spring,” Dietz said. “The industry has faced two surges in lumber pricing in 2020, including one that persists here at the start of 2021.
“The gains are adding about $16,000 to the price of a typical newly built home,” he said. “Materials are also taking longer to arrive at construction sites.”
Dietz said the lumber price volatility is mostly being caused by pandemic-related supply chain disruptions.
“The main issue is domestic lumber mills not answering the bell on demand,” said Phil Crone, executive officer of the Dallas Builders Association. “Many are running two shifts when the market dictates they run all three.
“The lack of a long-term lumber deal with Canada curtails competition from abroad and allows producers to enjoy the profits of high prices at consumers’ expense,” Crone said. “One custom builder reported today that (wood panel) sheathing went from $7.20 a sheet early last year to $32 a sheet.”
With home starts in many parts of the country at their highest level in more than a decade, it’s not just lumber prices that are hammering builders.
Costs of all types of building materials, land and labor are rising in North Texas, said Ted Wilson, principal with Dallas-based housing analyst Residential Strategies.
“It’s really not just lumber but the entire supply chain,” Wilson said. “Some of it is COVID-related — these plants have had to shut down temporally when there are outbreaks. Appliances coming from out of the country have also been disrupted.”
The increase in construction costs can put a pinch on builders who sell a house before starting work and see costs soar during the build.
“You want to try to lock in prices as much as you can, but it is hard,” Wilson said. “Some of the builders have a six- to nine-month backlog of orders.
“They want to price up the houses to anticipate some price increases,” he said. “A lot of builders have definitely increased prices to improve their margins, but those profits have eroded because of building cost issues.”
With a shortage of preowned houses on the market, thousands of buyers are turning to the new home market. North Texas home starts were up 33% in 2020, and the Dallas-Fort Worth area leads the country in single-family building.
“We may be setting a record in 2021 with respect to starts because the sales backlogs are so huge,” Wilson said. “The construction capacity is as stretched as it has been in some time.”