At Landen Design Build, we lately get one major recurring question! “When will lumber prices get more reasonable”?
Lumber Prices have already declined
In the short term lumber prices have dropped a bit, but will probably stay up there for the next 4-6 months, and in the long run they should come down to “more normal pricing”, exactly when this more normal pricing will occur is not yet perfectly clear.
You can still start planning your home build!
However, if you are planning a new home build or planning a major renovation project, you should note that the higher lumber prices have NOT raised our Architectural Design rates!
What do I mean by this? If you are waiting on lumber prices to come down, and we firmly believe they will, you can in the meantime get all your home or renovation architectural planning design work done, and possibly line up any permits that you will need, so that when lumber pricing does get a bit more reasonable you will be ready to hit the ground running.
This is especially a good idea if you end up requiring a development permit (DP). As a DP can take several months to crawl through, and only after getting a DP approval can you then apply for an actual building permit.
When lumber prices do come down to more normal rates we here at LANDEN fully expect to have a RUSH of new home builds flood the market, and create a huge labour shortage, so being ready sooner than later might be a very good idea!
Empty lumber racks at your average Home Depot indicate the shortage of lumber but here is the good news!, You can start the design process using LANDEN Design’s no charge totally complimentary preliminary design process, which I think you should find that this up-to 30 hours of “No charge design work” is a bit refreshing after looking at the latest lumber prices!
Buy now Pay Later is Available
Plus we have a special design program offer set-up just because of these high lumber prices!
Effectively we have created a buy now / pay later design program!
Here is how it works; you first register for our no charge preliminary design process, once you have used up the first 30 hours of no charge CAD and 3-D rending time, you can then decide on a GO or NO-GO on moving forward with a final permit ready architectural and structural design. However, if at this point of preliminary design you are not totally happy with our no-charge design service we can then all part ways as friends and you owe LANDEN nothing!
However, for a very limited time, if you do decide to move forward with a full set of permit ready building plans we will agree to put off the architectural design payment for finished plans up until the time lumber prices get more in line with normal pricing, using your construction start date as the 30 day trigger for payment for plans, or up to one year later (Ask us for more details).
This payment deferral for design work is just our way where we at LANDEN Design Build are trying to help out with these present high lumber prices!
PLUS! Our get off the fence BONUS OFFER
As a bonus, if you build with LANDEN Design Build and enter into a construction agreement with us within the next 6 months up to December 31 2021 we will pass on to you as our client all actual hard lumber cost used to build your new home, with “0”/ NO builder mark-up or handling charges over that of the actual hard cost of lumber.
Again, we are offering this one time offer in an effort to help you save some cost with these unpresented high lumber prices, in other words wen won’t make a single cent over hard lumber cost, and instead only make our building fee/profit off of the balance of other normal building cost when building your new home.
Furthermore, if you do build with LANDEN, we will also fully credit back all architectural design work, effectively you get our building plans for FREE!
Note: We are very competitive with our full custom home building and construction pricing, in other words, we are not just simply taking this “free” design cost and padding this design cost into our construction pricing, we are very happy to go head to head with any other repeatable quality builder that you wish to have a competitive quote from for the construction cost, based on using our plans.
Getting bids in while you wait for lower lumber prices
The other major thing you can do while your re waiting on lumber prices to normalize, is to get the rest of the project costing “tendered-out”, meaning you can send out your finish LANDEN designed permit ready plans for a bunch of detailed pricing for all the rest of you construction cost that are “non-lumber related” for all sub-contractors and tradesmen to price out.
At LANDEN we have a full tendering service, whereby we send out the finished plans for pricing to all of our trades, suppliers, and sub-contractors. We do have a normal fee of $800 to tender out a full custom home build, and like the above design cost we will for a limited time postpone payment for this service until lumber pricing gets more in line! (Ask us for details).
Plus, if you build with LANDEN we will fully credit back this tendering fee. What this full tendering gives you is a full reporting of all tendered/bid hard cost, including copies of all tendered quotes.
Plus a detailed construction estimate that not only includes all tender pricing, but also includes all the other expected incidental construction budget cost. Once again this full tendering service will save you time later on and also helping you hit the ground running when lumber pricing is more in line with your building budget! Plus, as we fully expect that when the next new-home rush starts, that trade and labour rates will go up, so trying to nail pricing down now before that happens might be a good idea!
The cost of waiting on lower lumber prices May actually COST you more than you think!
Simply waiting for lower lumber prices may actually cost you more than you think! If for example you have already purchased your land/building site, and if you used financing to buy the land, that will cost you in carrying cost to wait, especially if you still have your existing home to cover the carrying cost on. This extra carrying cost comes in the form of interest carry,
insurance cost, and property taxes on a building site/land that has no cash flow coming in.
Plus the fact that when lumber prices do come back down to being more in line with “normal prices” there will be a whole bunch of pend-up new home demand and an expected huge rush for everyone to get a home built all at the same time! Translation! Much higher labour rates!
Right now labour rates are up, as compared to 2019 / 2020, but are still reasonable compared to elsewhere in the country, and even though trades and subcontractors are very busy with renovation work, all thanks to the latest COVID renovation BOOM, if you also then add on the next expected RUSH of new home builds to that labour factor, I predict much higher labour rates to come, which could easily out strip the present higher lumber pricing! In other words, you might not want to wait too long!
Keep in mind that when labour rates do go up due to these expected labour shortages, they generally go up right across the board, meaning not just lumber related labour rates go up, all labour rates go up, such as electricians, plumbers, HVAC, cribber’s, drywall labour, etc., not to mention that “lumber related” framing carpenters will all want more money! Plus the fact that historically when labour rates go up, materials and supply rates tend to closely follow suite.
In other words when labour rates such as drywall labour goes up, so then do any related items like drywall board, mud, and taping supplies etc. The other factor to think about is that no matter what, every year “winter is coming” and along with it, higher winter construction cost, meaning that IF you can beat some of these higher winter cost by starting construction now, could translate into a 10% to 12% saving in winter construction cost, and this could help offset some of the present higher lumber cost!
Consider the cost of borrowing
The cost of borrowing, could also cost you more if you wait for lumber prices to drop, at the present time interest rates are at an all-time low, but with present inflation rates many experts are predicting that lending rates will go up by 2022, and at the moment interest rates are a bit unpredictable, and as no bank will lock in a “take-out mortgage” until after the home is complete, say 8 months to a year from the time you start, means that you really won’t know what the actual final interest rate will be until you are fully built! So the longer you wait for cheaper lumber, may mean the more you will pay for your 1-5 year term 25/30 amortized mortgage.
The recent history of Construction Costs
There have definitely been some challenging times with cost of construction materials and cost of goods leading to some pretty intense conversations with some of our current and potential customers.
However after factoring the new cost of goods, our typical build has only increased about 8% to 12% from last year, which is minor when compared with some of the jaw-dropping articles showing 300%-400+% increases in lumber costs.
The calculators on our website have been updated with the latest lumber numbers, so you see how the ball-park estimate for your specific project has changed.
Additionally, judging by lumber commodity futures, prices are expected to go down to more reasonable rates, this, as the traditional summer building season comes to a close and demand for materials starts to slow down. With interest rates at historical lows, it is still a good time start working on your custom dream home.
We still have many of our clients choosing to move forward quickly and get things done this summer. Our design team has been worked hard getting those customers moved through our design and permitting process to make projects ready for a scheduled start date.
However, some clients are waiting on lumber prices to drop a bit more. Others have made the decision to hold off until 2022 to give themselves ample time to complete the design process, planning a scheduled build start date for whenever works best for them later this or next year.
If you are having a tough time deciding when will be the best time for you to build your new home, then reach out to us here at LANDEN Design Build and we can talk about what the best option might be for you. All of our initial design consultation is NO CHARGE, so you have nothing to lose, other than possibly putting on a pot of coffee while we meet!
When will we see lumber
yards look like this again?
BMO and other experts see that the light is at the end of the tunnel, with lumber pricing normalized by the end of 2021 into 2022
The US Lumber Market
As we here in Alberta are directly affected by the US markets in relation to the overall North America housing and lumber market, and given that even the US Fed Chairman Jerome Powell has specifically referred to the recent weakness in lumber prices as an example of why inflation pressures are “transitory”. Whereby the inflation debate will probably rage on over the next few years but here are a few points specific to lumber and the future of lumber prices.
(Note: the following bullet points are from Raymond James research June 2021):
- Western SPF pricing continued to fall as buyers were content to remain on the sidelines while some noted they could easily increase purchasing activity at current levels . WSPF ended the week down 20% at $1,005/per1,000 BF, up 40% relative to 1Q21, up 171% y/y, and up 110% YTD.
- SYP pricing also fell once again, as buyers kept purchases to immediate needs while still determining a trading range. SYP ended the week down 18% at $885/per 1,000 BF, up 3% relative to 1Q21, up 71% y/y, and up 104% YTD.
- OSB trading gained on the back of strong demand from contractor yards offset by continued weakness from the DIY sector. Pricing for North Central 7/16” ended the week up 1% at US$1,345/per 1000 BF, up 45% relative to 121, up 372% y/y and up 130% YTD.
- Cash WSPF lumber prices are 110% above Raymond James’ US$600 2022 WSPF lumber forecast (which we use for valuation purposes
North American lumber prices have been soaring, sending homebuilding costs higher with it. However, the good news, relief looks like it is just around the corner this, according to BMO Capital Markets that see lumber prices dropping in the second half of this year, and into 2022, BMO expects lumber prices to be at more typical levels.
Hopefully this will help alleviate some of the rising input costs driving higher new home prices. Over the last few years BEFORE crazy lumber prices, the average per 1,000 board foot rate (In US dollars) was about $500 per 1,000 BF throughout 2018, 2019 and heading into 2020, then COVID hit us, and then lumber prices soared to over $1,600 per 1,000 BF to a whopping 200% to 300% increase, this, depending on when you needed to buy lumber in early 2021.
This translated into a $30,000 to as much as $50,000 increase in overall building cost for an average home in Alberta, put another way, an average 2,000 sq. ft. custom home that “used to be” averaging say $280 per sq. ft. or $560,000 in 2019 hard cost (without lot/land) would cost you $600,000 to build or put another way about a 7%-8% overall increase in the overall home building cost, this, compared to the past more “normal lumber rate times”
However, the present rate is about $700 US per 1,000 BF, or put another way about $200 per 1,000 BF over the past average historical 2019 rates. Translation! Now an average 2,000 sq. ft. home would now cost you about $15,000 to $17,000 more than it would have cost you in 2019 in lumber cost.
However, lumber futures are projected to fall to the $450 to $415 per 1,000 BF some time in 2022, this, based on BMO projections. So the question that you need to ask yourself, “is waiting till 2022 worth it”? As that information all translates into only a 2%-3% increase factored over the entire build cost compared to that of 2019/2020.
Lumber has resumed the downward trend, trading below $715 per thousand board feet, the lowest since the second part of January as demand continues to slow while mill production has rebounded and as the labor-related issues from COVID dissipate.
Vaccinated people are starting to travel and book holidays as more businesses and activities reopen instead of spending on home renovations. Lumber prices jumped more than 500% between April 2020 and May 2020 to hit an all-time high of almost $1,700 on May 7th, as sawmills were unable to meet unexceptional demand for home building and DIY home improvements spurred by the coronavirus lockdowns.
Four year trend, source TRADING ECONOMICS
One year trend, source TRADING ECONOMICS
So where is the lumber market headed?
BMO is projecting a sharp correction in prices as a result of production slowing, and rates tightening. SPF is forecast to fall to an average of US$415 per 1,000 BF in 2022, down over 61.8% from this week. BMO expects prices to start falling in the second half of 2021, straight through to 2022. NOTE: When the lumber market corrects it can do so in a hurry!
If the BMO’s forecast proves true, we may experience some relief from high input costs. This will either make home prices more affordable or building homes more profitable for some builders! It will be up to consumer demand and competition to see if the net prices to the buyer will adjust to the new market expectations.
It should be noted that we here at LANDEN Design Build work mostly off of a fixed project management fee, meaning that no matter where lumber cost land, or any other construction cost for that matter end up, we at LANDEN make the same base management fee! (Ask us for details)
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