One of North America's premier lumber research groups is challenging the notion that skyrocketing lumber prices could depress home sales, though on analysis their disagreement turns out to be mainly one of degree.
Brendan Lowney and Paul Jannke of Forest Economic Advisors also seek to put to rest the notion that the Trump Administration's lumber tariffs are entirely responsible for the price gains. Blame a multitude of other factors, too, they say.
In an essay published online today, Lowney and Jannke take particular issue with the National Association of Home Builders and other groups that have spoken out frequently and strongly about lumber. The most recent Random Lengths reports have framing lumber prices up 40% and sheet goods prices up 38% from where they stood at this point a year ago, and that's after two weeks of price cuts.
"We entered the term #lumber tariffs into the Twitter search bar and were barraged with a slew of links to articles that screamed that surging lumber prices were a mortal threat to the U.S. housing recovery," Lowney and Jannke wrote. "Many of these articles uncritically cited a NAHB report which found that the lumber tariff has “pushed up the price of a typical newly-built home, according to our survey data analysis, by about $9,000.”
The two did their own computations, largely using NAHB data, and concluded that the change in lumber prices between the end of 2016 and the middle of this year would push up a home's price by roughly $6,500.
"The average price of a new home over the first four months of 2018 was about $326,000," the FEA principals wrote. "The total increase in lumber costs from 2016Q4 to 2018Q2 is only 1.2% of that costs. And remember that home purchases are usually amortized over 30 years. If we assume a 4.75% mortgage rate and a 30-year term, the total increase in lumber costs adds less than $20 a month to a typical mortgage payment."
Asked about FEA's conclusions, Rob Dietz, the NAHB's chief economist, said the association is justified being concerned about lumber prices. "Given the increases in a number of cost factors (such as labor), it would be irresponsible to shrug off the significant jump in the price of framing lumber, especially during a period of rising interest rates, as inconsequential to a market that badly needs more affordable supply," he told ProSales in an email.
Lowney stood with FEA's contention that lumber prices aren't a deterrent. "Builders are making money hand over fist; go look at their second-quarter financials," he told ProSales in a telephone conversation. “I don’t think lumber prices are killing builders.”
Lowney and Jannke also sought to extinguish reporters' plans to write stories based on the notion that the Trump administration's tariffs on softwood lumber caused wood building material prices to double. Lots of other factors play a role, too, they said. Those factors include supply restrictions and a beetle infestation in western Canada, market access restrictions in eastern Canada, growing demand in the U.S., fires in the Pacific Northwest followed by abnormally cold weather, rail car shortages, and trucking rates.
"So, while the trade restrictions did cause lumber prices to rise when they were originally imposed in 2017Q2, they are not the primary cause of the more recent and pronounced run-up in lumber prices," they wrote.
In his email, Dietz noted that "pro-tariff analysis suggested a price hike of less than $300 a home. This was clearly incorrect."