What Home Builders are Doing with the High – and Still Rising – Price of Lumber

With the rising price of lumber – which is due in large part to the slow down of mills during the COVID-19 pandemic – home builders and contractors have had to play a waiting game…and some consumers are paying much higher prices.

As of April 2021, lumber prices have soared by approximately 232% since the beginning of the Coronavirus crisis, and the cost is expected to continue rising. In fact, recently, the May futures contract price per thousand board feet of two-by-fours rose another $48 to $1,420, in turn, causing the trading of lumber to halt for the day.

With home buying in high demand, though, how are builders dealing with this potential crisis?

According to the National Association of Home Builders (NAHB), almost half of single-family home builders are using “price escalation” clauses in their sales contracts. This means that contracts are being inked “based on the current prices for the building materials.” Many builders also vow to make an effort to obtain the lowest possible price.

However, if the price rises to an inordinate level, the buyer has the right to terminate the contract. Given that, both the builder and the home purchaser can have a certain degree of protection.

Some additional ways that builders have been dealing with the rise in lumber prices include:

  • Pre-ordering lumber
  • Obtaining price guarantees on lumber from suppliers
  • Delaying home builds if/when costs spike
  • Pausing builds after the foundation of the home is in place
  • Hedging the price they pay for lumber by using futures or options contracts

If the current price of lumber has you concerned about moving forward with the construction of your new dream home, give us a call and let’s talk. There are many possible options available that can still allow your home build to go through, without the need to substantially increase your costs.