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Lumber and building material prices put a burden on U.S. homebuilding

Buying and selling a home has become a good news/bad news scenario for consumers

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The rising price of lumber and other building materials has put a serious squeeze on homebuilders, resulting in a 13% drop in single-family housing starts from March to April, according to new data from the U.S. Census.

Housing completions were down by 4.4% -- a slowdown also connected to the price of lumber and building materials like copper, which has hit an all-time high. Nearly 15% of homebuilders surveyed said they are only putting down concrete foundations and then waiting to frame out the house to see if lumber prices shift back in their favor. 

While the number of building permits has gone up, the average number of months it takes a builder to move from authorization to start has also grown longer.

"Builders are delaying starting new construction because of the marked increase in costs for lumber and other inputs," Mike Fratantoni, chief economist at the Mortgage Bankers Association in Washington, told Reuters. "These supply-chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates."

Labor issues and appliance shortages pose other problems

On top of finding building materials at a decent price, one analyst says that finding the people necessary to build a house has also gotten tougher.

“I have to blame the difficulty in procuring lumber and other products, along with labor issues for the miss, in addition to likely cancellations due to skyrocketing costs for single family starts,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC.

“Builders are also reporting difficulty obtaining other inputs like appliances,” Fratantoni said. “These supply-chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates.”

The impact on buying a home

Overall, the homebuying market is a good news/bad news story. Mortgage rates are at record lows not too long ago, and the Federal Housing Finance Agency reports that home prices rose 12.2% from February 2020 to February 2021. The 12-month changes ranged from +10.5% in the West North Central region to +15.4% in the Mountain region.

That’s good if you’re a seller. But when sellers have to turn around to buy another home, they will also feel a slight pinch when it comes to the larger mortgages they’ll have to pay off. According to the Mortgage Bankers Association (MBA), the average loan size for new homes increased from $374,353 in March to $377,434 in April.

“The purchase market remains strong overall, but low housing inventory and accelerating home prices have started to adversely impact purchase activity,” said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

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