I am asked daily: “When are the prices of building materials going to drop and the real estate market going back to normal?” ”
My response is not well received, but I try to be frank when I say, âI don’t see how housing and supply issues are resolved quickly because the demand for housing exceeds a supply chain. broken that does not have the capacity, and the in recent years the US withdrawal from global trade agreements is starting to create real supply problems. ”
Here is the reason why I believe this:
Windows have an order lead time of 16-32 weeks and most other building material components are very long or unavailable.
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Steel is scarce and its price continues to rise, as well as concrete.
According to West Fraser, a major North American lumber producer, the US market is sized for 1.5 million housing starts. The country probably needs around 2 million people. There is a real shortage of wood.
Immigration policy and an aging workforce have created significant construction labor shortages that appear to be long term.
The pandemic and the aging of millennials are creating an environment of demand unprecedented since the housing boom of 2005-06. The difference is not the impetus of banks and investors, this real estate boom is caused by real demand which does not weaken. The lines of people trying to buy a home are real, and many are driven by the pandemic and unrest in major cities. Suddenly owning a home is big business for young families and cash buyers with cash are flooding the markets.
For example, if there is a shortage of 500,000 starts in North America, West Fraser estimates that you will need 10 sawmills for every 100,000 more starts. It would be almost impossible to build and rapidly increase production at 50 sawmills due to a lack of equipment, steel, personnel and logs. There is no easy solution to the softwood lumber problem and no, it is not caused by any president. The housing collapse of the 2000s ended a huge amount of production that has not been used for 12 years, you just can’t flip a switch and put it back on.
According to the United States Census Department, housing starts in America for the month of April were 1,569,000 and new building permits issued in April were 1,760,000. Both figures are higher than 1.5 million housing starts West Fraser says the country has available supply capacity. New home sales rose 48.3% from the previous year to 863,000 units, and the number of new homes for sale on the market was 316,000 or 4.4 months, which is woefully low . The average price of a home was $ 435,400.
Florida home sales were up 55.4% by Florida real estate agents. Home prices were up 22.4% from the previous year, with the statewide median price of $ 336,525. As of April, Florida only had a 1.1-month supply of single-family homes on the market, which is horrendously low. As COVID-19 rates continue to improve and the country moves closer to normal, expect that housing count to improve dramatically. There is a strong pent-up housing demand that is about to unleash.
Forecasts and predictions may be wrong, but the social media chatter that the prices of lumber, building materials and housing will drop later this year is simply unfounded. Like I said earlier, “I don’t know how quickly this resolves.”
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of “Around the House” which can be seen on AroundtheHouse.TV.