Housing prices: No dips in sight as demand, lumber, labor costs push prices higher

By David Pendered

The prospect of falling home prices – affordable units or market-based – shows no signs of appearing at the start of 2021. Demand for dwellings exceeds supply, and prices for lumber and labor remain above expectations.

This is how the Atlanta Fed put it in its Dec. 2, 2020 Beige Book report:

• “Construction costs, especially lumber and labor, remained elevated. Consequently, home prices continued to rise, putting pressure on affordability.”

Another recent federal report, issued Dec. 23, 2020 shows that home sales in the South led the other regions of the nation through 2020. This demand is evident in the time an abode is on the market. The national average is 4.1 months, according to the federal report; the Atlanta average is 61 days, according to a report by Norada Real Estate Investments, which observed:

• “Experts consider the market balanced when the number of listings is equal to about six months of sales.”

Headlines may go to hot housing markets in other regions, but this pace of sales in the South can’t be overlooked. The South reported the lowest rate of seasonal slowdown in sales in November, compared to October, as compared to the rest of the country. The South reported the highest increase of sales based on a comparison of sales in November 2019 and November 2020, according to the Census/HUD report – up 30.5% in the South; up 20.8 for the nation; and up 19.8% in the historically effervescent West.

Bruce Gunter, a longtime provider of affordable homes in Atlanta and now president of Civitas Group, said Wednesday the home prices reflect two components of housing development – supply and demand, and cost of labor and materials.

“Supply hasn’t kept up with demand, and the costs of construction have to be a reason for the impeded supply,” Gunter said. “Maybe not the biggest reason, but a reason.”

Lumber prices are just one example of material costs that skyrocketed in 2020 and have not fallen as expected.

By last autumn, rising lumber prices had added more than $16,000 to the price of an average house, during a run-up on lumber prices that exceeded 170 percent from April to mid-September, according to a report by the National Association of Home Builders.

Forecasters expected prices would recede for reasons including a decline in tariffs on Canadian imports that took effect in November, from 20% to 9%, and a seasonal slowdown in construction as winter curbed construction in colder climates.

The expected priced dip came – and quickly left.

The price of random lengths of lumber did drop, from around $950 per thousand board feet in late September to around $560 in mid November. Prices immediately climbed and were around $880 on Jan. 1, according to an NAHB report.

Gunter said labor shortages are a significant concern on the supply side of the equation. He said the issue of immigrant workers is well known, and worth keeping in mind in discussions over the cost of new-build dwellings.

“This is now an old story – the clamping down on immigration has hurt a lot of homebuilders,” Gunter said. “A lot of the workers were Hispanic and clamping down on them constrained a source of labor. Replacements, when they were available, came at a higher cost.

“These are pretty good jobs, construction jobs, and they are skilled jobs,” Gunter said. “Skilled labor goes fast.”