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Lumber Futures Drop Drastically, Prospective Homebuyers Stand to Benefit

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FridayJuly 2, 2021
Lumber Futures Drop Drastically, Prospective Homebuyers Stand to Benefit

Much to the new construction industry’s dismay, the cost of one thousand board feet of lumber hit $1,670.50 on May 7, 2021 (a 400% increase since the COVID-19 crisis in April 2020). The cost of lumber adversely impacted prospective home buyers for a number of reasons: (1) the cost of building new homes became roughly the same as purchasing an existing home; (2) because the costs were comparable, many buyers opted to purchase existing homes rather than wait for new construction to complete (think of it as an opportunity cost calculation); (3) because new homes weren’t being built, the record-low housing inventory remained low; and (4) because inventory was low, and demand was high, the average home price has been increasing at a significant rate. However, there is good news on the horizon for prospective homebuyers: lumber futures decreased by 40% in June 2021, the worst month for lumber futures since 1978. Moreover, lumber is down 18% in 2021, which represents the first negative half-year since 2015.

(Source: CNBC Website: Lumber prices dive more than 40% in June, biggest monthly drop on record)

In early 2021, several lumber mills shutdown during the COVID-19 pandemic, and the country saw a surge in demand for new construction and home improvements. According to the National Association of Home Builders (“NAHB”) the average price of a new single-family home increased by roughly $36,000.00.

As lumber prices continue to decrease, and the number of mortgage applications decrease, prospective home buyers can expect the housing market’s explosive surge in pricing slowdown. This is not to say that the housing market will suddenly crumble, investing in a home is still an extremely safe investment, but price growth should slow down over the next few months.

At the Chernov Team we understand that knowledge is power, and knowledge of how the price of lumber impacts the housing market, in a way that benefits prospective buyers, is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.

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