Homeowner-hopefuls dreaming of their forever home may have to put those dreams on hold—or spend more than initially anticipated. Lumber shortages over the past 18 months and low housing inventory have made buying or building a new home far more expensive than what any of us could have predicted at the onset of 2021. And although some of the housing market disruption we saw earlier this year1 is shifting, it may not be enough to truly bring down housing costs anytime soon.
We’ll dig into some of the reasons why—and what the increase in home prices means for insurance premiums.
Lumber Pricing Climbs and Dips
Lumber price trends have been more nausea-inducing than a bad amusement park ride. They reached an all-time high of $1,515 per thousand board feet by mid-spring 2021, and then plummeted over the summer, down to $399 per thousand board feet by the end of August, according to Fortune.
Why? Basic supply and demand. Between late 2019 and today, the perfect storm of events caused radical shifts on both the supply and demand side.
Unforeseen by the lumber industry (and the rest of us, to be fair), 2020 saw a huge surge in lumber demand, rather than a dip. But lumber mill operators and dealers had anticipated the exact opposite for 2020, and decreased production prior to the pandemic. Production fell even further when the COVID forced temporary mill shutdowns and reduced staffing.
Thanks to stay-at-home orders and social distancing, people were stuck at home. With plenty of time on their hands, many Americans decided to pursue major remodeling projects they had been putting off, or take on DIY projects to make their spaces more functional or enjoyable. People also began buying more furniture to support their work-from-home and school-from-home needs—shelves, tables, chairs, just to name a few.
In addition to the pandemic, the United States experienced a chain of 22 natural disasters in 2020, including tornadoes, wildfires, and hurricanes. All require rebuilding, and rebuilding requires—you guessed it—lumber.
After hitting an all-time high in May, lumber prices started falling. DIYers balked at the soaring prices, and spending slowed. On top of that, vaccines began rolling out and restrictions loosened, so people began venturing out more, leaving less time or interest for DIY projects. Likewise, some potential home builders couldn’t stomach the exorbitant increases in material costs, and decided to wait to build. The overall slow-down in purchasing gave lumber mills a chance to catch up on production. As demand fell and supply rose, prices dropped.
The Housing Market is Cooling, but Not Crashing
With lumber prices falling so drastically, we should be seeing a corresponding dip in house princes too, right? Well, not necessarily.
Lumber wasn’t the only construction material to see shortages. Many other manufacturers of building materials experienced supply-chain disruptions with delays and price hikes as well.
Since the start of the pandemic, home prices for existing builds saw significant gains, as well—though the jump was more prominent in some states than others.
We shouldn’t see a major housing market dip or dramatic crash even with home prices decreasing a bit. The past decade of low housing construction yielded low home inventory, spurring competition among buyers willing to engage in bidding wars. Mortgage rates also remain at record-lows, strengthening buying power by allowing homebuyers to “afford” those higher offers.
Bottom line: home-seekers may be stuck with paying higher prices for existing homes or paying higher prices for new-builds for quite some time.
How This Impacts Insurance Premiums
Future and existing homeowners planning their housing budgets need to factor in the cost of higher insurance premiums. As construction costs increase, the cost to replace and repair homes increases as well—as do insurance premiums—and insureds will be looking to their insurers for explanations. .
Jencap works with a robust network of specialized Personal Lines carriers to provide comprehensive coverage for homeowners insurance. Our team of experts customizes every policy to the clients’ specific insurance needs and finds ways to provide more value through every step of the process. Put Jencap to work for you and your client by contacting us today.