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It takes a lot of lumber to build a house, and the price of that wood is going way up.
A new duty imposed by the U.S. Commerce Department on Canadian softwood lumber is designed to level the playing field between Canadian and U.S. lumber producers, and just the anticipation of it has pushed lumber prices higher by about 22 percent since the start of this year.
The Trump administration argues that government subsidies for Canadian lumber are unfair. It's great for U.S. lumber producers, not so great for U.S. homebuilders, who inevitably pay the price.
"NAHB is deeply disappointed in this short-sighted action by the U.S. Department of Commerce that will ultimately do nothing to resolve issues causing the U.S.-Canadian lumber trade dispute but will negatively harm American consumers and housing affordability," said NAHB Chairman Granger MacDonald, a
The cost of this new duty will increase Canadian lumber costs for U.S. customers by 6.4 percent, according to the National Association of Home Builders, and that will be passed on to homebuyers. The NAHB estimates it will increase the price of an average new single-family home by $1,236.
"Lumber is about 10-15 percent of the sticks and bricks cost of a house," said Buck Horne, vice president of equity research in housing and real estate at Raymond James. Horne notes, however, that a lot of the tariff's impact was already baked into market expectations over the past few months, so lumber costs should not go up much more. That said, builders are already facing big cost challenges.
"The materials prices are adding another layer to the surge in the replacement costs of housing. Labor shortages continue. Finished lot prices are inflating in high single digits. Lumber is one component, but we're also seeing gypsum drywall higher and concrete and cement," added Horne, who estimates that the cost to build a single-family home is rising at up to 9 percent.
Builders are going to have to offset that with higher prices, perhaps raising them 3 to 5 percent. The median sale price of a newly built home in March rose just 1 percent compared with a year ago. This is likely because builders are still leery of a spike in mortgage rates. They were hit hard in
Pulte, an Atlanta-based homebuilder that reported quarterly earnings Tuesday, noted a drop in demand for its entry-level homes. That is likely due to
Gene Myers, a homebuilder in Denver, said he could be constructing twice as many homes if the costs for land and labor were not so high.
"Most of the materials that we use are global commodities, so anything that affects the free flow of those commodities across borders will have a price effect," said Myers, who is concerned that the labor issue also will get worse under President Donald Trump's immigration policies.
Even though demand for housing is high, the short supply has pushed prices to new peaks; that is sidelining buyers, especially first-time buyers, who are usually a huge driver of home sales.
Watch: Wilbur Ross on lumber tariffs