How much will a new, custom-built home cost to build in 2024?
Depending on a variety of variables, still more than it did pre-pandemic.
While the pandemic (for some) may be something in the rearview mirror, its effects are still being felt today. Though things have improved greatly from the COVID quarantine years, materials still cost more, lead times are still a bit longer, and the labor market remains tough.
Like other commodities during the last several years, lumber prices and their volatility have thrown an expensive wrench in the gears of many custom home projects. For both the future homeowner and homebuilder, it’s simple math – the more expensive lumber is, the more expensive it is to build a custom home.
But it’s been almost four years since the pandemic started. And hasn’t life gone back to normal? Shouldn’t we be done asking is lumber prices are back to normal?
First, a recap.
Beginning in 2020 and running through 2022, lumber prices were characterized by two things: being high and fluctuating. The simple explanation for both was the pandemic and its effects on global commerce, including:
- Reduced lumber production
- A housing boom
- Supply chain disruption
Once the pandemic hit, entire supply chains were crippled. Raw materials of all sorts became harder to come by – lumber included.
Across the country, logging operations and sawmills were shut down or drastically reduced operations for many months, creating a lumber shortage. Imported lumber and timber that supplemented domestic production became hard to come by as international trade came to a near-standstill.
The laws of supply and demand kicked into high gear. With an imbalance of available lumber against consumer demand, lumber prices skyrocketed. Lumber price charts show prices spiking by about 280%, or more than doubling with prices peaking at $1,418 per thousand board feet in May 2021.
The pandemic housing boom compounded matters more. Throughout 2020 and 2021, the real estate market was a seller’s dream. Many who lived in crowded urban areas looked to leave while existing homeowners found they needed bigger spaces. With a limited inventory of homes for sale, house prices skyrocketed.
Those who turned to new construction for their next home found themselves competing for a limited supply of building materials.
Though lumber production had mostly resumed both domestically and abroad, the supporting supply chain never fully recovered.
Both in the U.S. and internationally, ports and delivery services found themselves short-staffed or still operating under restrictive public health guidelines. With limited workers, the ability to process goods at pre-pandemic level was nearly impossible. Shipping prices – from container costs to transit expenses – increased to make up for budget shortfalls.
Compounding matters more – consumer demand hasn’t let up either. Again, the laws of supply and demand apply, keeping prices well above where they were before the pandemic (more in this in a minute).
So now what? Are lumber prices go down for 2024?
In short, lumber prices are below peak pandemic levels, and they’ll likely stay that way. They will, however, continue to be higher than pre-pandemic levels.
At the beginning of December, lumber prices were just a little more than $500 per thousand board feet. That’s about ⅓ of the peak during the pandemic. It also caps a year that was relatively stable for prices.
However, market analysts expect lumber prices to go up throughout 2024, driven by one main reason that’s somewhat welcomed.
Increased demand for new homes.
The housing gap that was exacerbated by the boom seen in the real estate market during the pandemic still exists. According to analysts, there’s a gap of about 6.4 million single-family homes. The number is reduced significantly when including multi-family home construction about 2.3 million. In either case, both figures represent a greater demand than an inventory.
And again, the laws of supply and demand will take hold. With more future homeowners expected to turn toward new construction, the increased need for lumber will drive the material’s price up.
But what’s keeping lumber prices higher than what was considered “normal” increases year-over-year for decades? Several of the same factors that drove them up to begin with.
- Reduced lumber production: In British Colombia, a major global supplier of timber, lumber production is down, largely in part to new government regulations and the impact of forest fires.
- Labor shortages: The labor pool picture has been less than rosy in recent years. In short, there’s a shortage of workers. The lumber industry the world over is not immune to this. With fewer workers, the costs to harvest and produce lumber go up.
- Supply chain logistics: The supply chain continues to be tricky, and it’s expected to be tough(er) to manage in 2024. Vulnerabilities to labor shortages, cyberattacks, and the impact of geopolitical tensions are poised to cause some disruptions.
While there’s no way to insulate an industry from the effects of a global event, there are ways to reduce their impacts. For custom home builders, partnering with a building materials supplier that has an established network and efficient construction method brings some stability to materials costs.
Why does partnering with a building materials supplier help mitigate costs?
Strength in numbers.
With a collective of construction companies working through a single source, purchases of commodities such as lumber are made in bulk.
Like prices going up because of a limited supply trying to meet increased demand, bulk purchases take on the laws of economics in a different way. Items bought in smaller quantities require more resources – whether it’s manpower or packaging materials – to make their way from the manufacturer to your doorstep.
Purchasing items in large orders drives down the cost per unit – even if it’s by a few pennies – as there’s ultimately less work and other materials, such as packaging, involved. In bulk purchases, pennies saved add up quickly to a noticeably lower price.
Another way custom home builders can control construction costs is by building homes using a process rooted in efficiency. Panelized construction is designed to do just that.
Through panelized construction, a home’s wall panels and other structural components are built off-site in a factory. In creating the parts of a home in a factory setting, there are controls over the amount of materials used and how far they go.
Materials are ordered in exact quantities and assembled to specific measurements, eliminating waste. In other words, there isn’t much useless scrap left over from that bulk order of lumber. The client only pays for the materials actually needed to create their next home.
Once delivered to the construction site, a panelized home goes up quickly, with no need for additional materials to assemble it.
While there’s no way to predict the impact an event will have on lumber prices and home construction costs, there are two important steps your home building company can take to shelter itself.
Aligning your home building company with an established material supply increases value for you and your customer. And using an efficient building method ensures you’re not using more than you have to.