Booming timber prices are adding about $US30,000 ($41,000) to the average price of a new home in the US, according to the National Association of Home Builders (NAHB).

That’s down from $US36,000 ($50,000) estimated in April, but still a steep increase. And despite the recent plunge in lumber (timber) prices from those ridiculous highs…

Lumber futures (NASDAQ) over the past 12 months.

… prices for house framing timber are still up 30% year-on-year, which means lower prices are not yet being passed on to the consumer.

Added to this, prices for other wood products key to homebuilding, such as plywood and oriented strand board, are also still extremely elevated.

“There can be a considerable lag before a fall in lumber prices in commodity markets translate into lower prices for builders,” according to Oxford Economics.

“Builders continue to worry that higher home prices due to higher input costs will push some buyers to the sidelines.”


What about the Australian market?

Supported by government stimulus payments, US approvals to build new houses leapt 67% to a record high in the month of April, compared to the same month a year earlier in the initial stages of pandemic-induced lockdowns.

The Australian market recorded similar figures, but we aren’t expected to see eyewatering US-style prices increases here.

Bunnings, which has a dominant 50% market share in home improvement in Australia, was disinclined to raise the shelf price on timber and hoped to make back losses by cutting costs, managing director Michael Schneider said in an investor briefing hosted by Bunnings owner Wesfarmers (ASX:WES) in early June.

“We think about timber — we’ve probably got another six to 12 months of some challenge,” Schneider says.

“Feedstock [raw timber] is in a reasonably good space, but [the problem is] getting it through the mills and, clearly, the strong demand is putting pressure on.”

Since then the price of timber has continued to rise – and while we still aren’t seeing huge price increases like the US market, declines were still a few months off, Jim Bindon managing director of timber seller Big River Industries (ASX:BRI) told the Sydney Morning Herald.

Major timber suppliers in Australia told Bindon they expect further price rises in August and September, “though he doesn’t expect an increase of more than 50 per cent from the pre-COVID norm”.