A sharp increase in lumber prices is wreaking havoc with builder profits and may eventually price some potential homebuyers out of the market, according to the National Association of Home Builders.
The trade group called a press conference Tuesday to spotlight rapid price increases this year, which it attributed to a trade agreement with Canada that sets complicated quotas and tariffs on Canadian lumber.
In just the last two weeks, lumber prices have climbed 10%, said Jay Shackford, staff vice president of the trade group in a separate interview. As of Friday, lumber was priced at $480 per thousand board feet.
Since April, prices have gone up one-third, and they've gone up 48% from a year ago, Mr. Shackford said. That has raised the cost of framing a typical 2,000-square-foot, single-family home by $3,000 in 12 months.
"The builder is the one that is really caught here," said David Seiders, chief economist at the home builders group.
For a variety of reasons - including competitive pressures and the traditional contract between home builder and buyer - it is difficult to pass through the price increases to the homebuyer, Mr. Seiders said.
"If a builder has contracted to sell a house at a particular price, which is the usual arrangement, and has not yet acquired the lumber, (the price hikes) cut into his profit margin rather significantly," he said.
Home builders got some practice in dealing with volatile lumber prices in 1993 and 1994, when prices soared above $500 for 1,000 board feet.
Some builders now write contracts that require homebuyers to absorb such cost increases. Also, the large, publicly traded builders may negotiate with suppliers for lumber prices that stay constant over several months.
Still, the home building industry is made of thousands of small contractors, and Mr. Seiders said they are mostly unprotected from the sharp price increases.
Beyond the immediate price increases, home builders are worried there won't be enough lumber for the spring building season. Canadian factories may choose to evade tariffs under terms of the trade deal by waiting to ship until after April 1.
The trade group wants congressional hearings on the five-year U.S.- Canada lumber deal, and it has appealed to the administration to reopen the deal, which took effect in April.
Of course, if prices remain high, homebuyers would ultimately pay.
A $2,500 increase in the price of a new home could put homeownership out of reach for 30,000 to 50,000 consumers next year, said David Lereah, chief economist at the Mortgage Bankers Association.
