Lumber prices have skyrocketed by more than two-thirds since the start of the year.
New homes could get more expensive because of a pandemic-related spike in lumber prices. Lumber's gotten way more expensive - and harder to find.

Initially when the coronavirus pandemic began, lumber prices slumped. Construction activity had ground to a halt, leaving mills with excess supply of wood. But in recent months, building activity has resumed with a bang.

And mills weren't prepared. With inventories low and demand so high, lumber prices increased some 60% over the past six months, compensating for the loss at the start of the year.

Adding to the constraints caused by the pandemic, the impact of tariffs on wood from Canadian mills continues to cause elevated prices for American construction firms.

That sudden rise in prices could have major implications for the home-building industry. The last time lumber prices increased this much, back in 2018, the square footage of newly-built homes dropped.
Before the pandemic started, the U.S. had a major housing shortage.

Homebuilder stocks (blue) crashed harder than the S&P 500 (black) in March. They've recovered even more aggressively than the large-cap index.

The housing market's V-shaped rebound has blazed a trail for the national recovery. It's no coincidence that housing's share of GDP jumped to a 13-year high (16.2%) in the second quarter.

This recovery could be on the verge of crashing into a wall. And according to NAHB Chief Economist Robert Dietz, that wall is constructed from softwood lumber. As Dietz warned lumber prices are skyrocketing. They're up a "staggering 80% since... mid-April" - and 67% since January.

Dietz warns that as lumber prices spiral, residential construction will slow. This will prevent the housing market from augmenting its shrinking supply with new homes.

Since framing lumber typically accounts for around one-fifth of a home's materials cost, builders must inevitably raise prices or watch their margins vanish.

The recent explosion in new home sales has allowed home builders to hike prices in most metro markets. 

If lumber costs remain elevated, builders will have difficulty constructing homes that appeal to the lower and middle segments of the housing market where most of the demand is concentrated.

According to data, the U.S. housing supply is at all-time lows. Inventory ended July down a staggering 32.6% from the previous year.

Mortgage applications for home purchases - a proxy for demand - are up a feverish 20% year over year. Throw in record low mortgage rates, and it's no surprise the U.S. housing market finds itself plagued with a full-blown Supply/Demand crisis.

Sales of newly-built homes surged an unbelievable 55% annually in June, while housing starts rebounded more than 17% from the previous month.
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