Welcome to today’s roundup of real estate news, where we delve into the latest trends and predictions shaping the housing market. From fluctuating lumber prices impacting home costs to shifts in mortgage rates and inventory levels, we cover crucial insights that affect both buyers and sellers. Whether you’re planning to buy a new home, sell your property, or simply stay informed about the current market conditions, our comprehensive coverage provides valuable information to help you make well-informed decisions. Dive into our detailed analysis to understand how these factors could influence the real estate landscape in 2024 and beyond.
Framing Lumber Prices | NAHB
The framing lumber composite price rose 2.2% during the week ending July 26. It was the second consecutive weekly increase, after prices dropped just two weeks prior to their lowest level since April 2020. NAHB continually tracks the latest lumber prices and futures prices, and provides an overview of the behaviors within the U.S. framing lumber market. The information is sourced each week using the Random Lengths framing lumber composite price which is comprised using prices from the highest volume-producing regions of the U.S. and Canada. A summary of other wood prices, including plywood prices, is included below.
Summary of the week-to-week lumber prices and plywood prices for the week ending July 26, 2024:
Softwood lumber prices have been especially volatile in recent years largely because of increased demand, rising tariffs, supply-chain bottlenecks and insufficient domestic production. To address the high prices for lumber, NAHB has advocated for the following actions:
In addition to narrowly defined framing lumber, products such as plywood, OSB, particleboard, fiberboard, shakes and shingles make up a considerable portion of the total materials (and cost) of a new home.
Surveys conducted by Home Innovation Research Labs show that the average new single-family home uses more than 2,200 square feet of softwood plywood, and more than 6,800 of OSB, in addition to roughly 15,000 board feet of framing lumber. Softwood lumber is also an input into certain manufactured products used in residential construction — especially cabinets, windows, doors and trusses.
To account for the manufacturer’s margin, sawmill prices for the lumber embodied in these products are marked up by the percent difference between receipts and cost of goods in the “wood product manufacturing” industry, as reported in the IRS Returns of Active Corporations tables.
Final pricing for home buyers is somewhat higher because of factors such as interest on construction loans, brokers’ fees, and margins required to attract capital and get construction loans underwritten. As explained in NAHB’s study on regulatory costs, for items used during the construction process, the final home price will increase by nearly 15% above the builder’s cost.
The bottom line is that changes in softwood lumber prices directly impact the price of a new home. This, along with rising wages for construction workers and higher interest rates, is one of the reasons the housing market is experiencing declining affordability.
Homebuilders and remodelers begin to get price relief once mill prices have substantially decreased for an extended period and/or stabilized. Note that large price decreases alone may not be sufficient. Prices must fall for long enough periods of time to sufficiently lower a supplier’s average costs after a run-up.
Depending on the rate and consistency of price decreases and whether prices have stabilized at the lower level, it may take at least a few weeks to a couple of months for builders to see price relief on the order initially reported in the lumber futures or cash markets.
The length of this “waiting period” for lumber price reductions varies with builder size, supplier size, and the specific builder-supplier relationship. Buying power is positively correlated with the size of a residential construction firm, while the same is typically true for suppliers’ selling power. The relative difference in market power between the buyer and seller is crucial in determining how quickly lower prices transmit to a customer.
In contrast to the dynamics of an environment with falling prices, higher prices reach builders much more quickly when market prices are increasing. The same forces that lead to large lags relative to mill prices on the way down can help explain why builders’ lumber costs may increase contemporaneously with mill prices.
Wholesalers tend to be “trigger happy” when prices skyrocket. As the cost of their inventory is low relative to cash prices during these periods, they will quote at or near current market prices. The environment is one in which wholesalers are assured to buy low and sell high.
However, wholesalers cannot predict when a bull market is going to end and buy their lumber according to how likely they believe it will last. As different buyers may have different forecasts, disparities in purchasing behavior can arise. A wholesaler who assumes lumber prices will keep rising for two months will buy more inventory than one assuming the run will last for only two weeks.
Retailers generally have less buying power than wholesalers have selling power. In such a scenario, the retailer (e.g., lumberyard) is said to be a “price taker.” As a result, their inventory costs tend to increase in step with market prices.
These higher costs are passed on to builders in order to maintain positive operating margins. This is why lumber retailers are less likely than wholesalers to realize outsized profits when prices are rising.
The analysis above was authored by Jesse Wade, NAHB director of tax and trade policy analysis. Mr. Wade has expertise in tracking and analyzing short- and long-term trends in commodities pricing, particularly for framing lumber, steel, gypsum and other common building material products used in residential construction.
Tackling the affordability crisis and the key issues that must be addressed to ensure a robust housing market.
Housing Market Predictions For 2024: When Will Home Prices Be Affordable Again? – Forbes Advisor
The housing market might finally be entering a transitional phase. Summer sales have been tepid thus far, but there are signs that activity could heat up by the end of the summer as mortgage rates edge down and much-needed resale inventory continues to enter the market, giving buyers more options.
Other good news for home shoppers is the ongoing decline in the median price for a new home—now below the median resale home price—even as builders continue offering buyer incentives.
Nonetheless, experts say the housing market will only see renewed momentum once mortgage rates drop enough to ease affordability challenges and incentivize homeowners locked in at low rates to move so inventory grows substantially to meet demand.
U.S. home prices posted a 5.9% annual gain for May, down from a 6.4% annualized gain in April, according to the latest S&P CoreLogic Case-Shiller Home Price Index. Yet, even as this annual gain marks a slowdown, the index still broke the previous month’s record high, indicating home prices are still out of reach for many.
“Affordability is the main constraint on the housing market,” Lisa Sturtevant, chief economist at Bright MLS, said in an emailed statement. “The market will move toward more of a balanced housing market in the second half of the year, but prospective home buyers will still face competition.”
Though affordability obstacles persist for buyers, other indicators suggest that the market is tilting toward buyers. Zillow reports that roughly 25% of its listings saw price cuts in June. The last time the rate was this high for cuts this time of year was in 2018.
Meanwhile, experts are hopeful that the Federal Reserve (Fed) will finally cut the federal funds rate in September, as inflation is cooling down sustainably toward the Fed’s 2% target.
Mortgage rates indirectly track this benchmark interest rate banks use as a guide for overnight lending. With the federal funds rate at its highest level in over two decades, mortgage rates—and borrowers—have been feeling the added impact on their ability to afford a home.
For a housing recovery to occur, several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
Of course, mortgage rates would need to cool off, which seems promising given the recent declines. The average 30-year fixed mortgage rate has been below 7% since the first week of June and has largely trended down, landing at 6.73% in the week ending August 1.
However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.
“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.
He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.
Following years of litigation, the NAR has agreed to pay $418 million to settle a series of high-profile antitrust lawsuits filed in 2019 on behalf of home sellers. The settlement received preliminary court approval in April. A judge is expected to grant final approval in November. Meanwhile, NAR announced that the new required practices will go into effect on August 17.
The required new rules prohibit broker compensation offers on multiple listing services (MLS), the private databases that allow local real estate brokers to publish and share information about residential property listings.
Moreover, sellers will no longer be responsible for paying buyer broker commissions—upending an accepted practice that has been in place for years—and real estate agents participating in the MLS must establish written representation agreements with buyers.
If you sold a home in the past ten years, you may be eligible for a small piece of this settlement pie. Visit realestatecommissionlitigation.com for more information about filing a claim.
Despite more resale homes entering the market, the inventory shortage remains severe and likely will for some time, thanks to multiple headwinds.
For one, many homeowners remain “locked in” at ultra-low mortgage rates, unwilling to exchange for a higher rate in a high-priced housing market. Consequently, demand continues to outpace housing supply—and likely will for the remainder of this year.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
New home construction has provided some relief, with inventory at its highest since early 2008. However, more than this welcome supply is needed to fill the inventory gap.
Still, while inventory is some 33% lower than pre-pandemic averages, there is a bright spot in the data—current inventory levels sit at their smallest deficit since fall 2020, according to Zillow analysis. Inventory may improve further if home prices and mortgage rates stay high.
Here’s what the latest home values look like around the country.
Builder sentiment continues to wilt with the summer heat.
High mortgage rates and sticky inflation are primarily to blame for the dampened outlook for new construction, with builder confidence inching down from 43 to 42 in June, according to the most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This reading marks the third consecutive month of downward movement and negative sentiment.
A reading of 50 or above means more builders see good conditions ahead for new construction.
Meanwhile, the construction of new homes, which had been on a tear, helping to fill the hole left by scant resale inventory, continues to sputter.
New single-family home permits fell to their lowest seasonally adjusted annual rate since May 2023 amid builder blahs, dipping 2.3% month-over-month in June, according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). Housing starts were down 2.2%, and completions rose only 1.8% from May.
Meanwhile, prospective buyers have reason to be optimistic: 31% of builders slashed prices in June to bolster sales compared to 25% in May, according to an NAHB press statement. A majority of builders were also open to offering incentives.
New and existing home sales were down in June, but pending sales are looking up. Here’s what the latest home sales data has to say.
Existing-home sales slumped 5.4% in June, according to the latest report from NAR, marking the fourth straight month of declines as home prices reached their highest on record, putting off potential buyers. Sales also fell 5.4% compared to June last year.
Could we finally be tipping over into a buyer’s market? Experts seem to think so.
“Homes are sitting on the market a bit longer, and sellers are receiving fewer offers,” said Lawrence Yun, chief economist at NAR, in the report. “More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis.”
Meanwhile, resale homes hit an eye-popping $426,900, a bridge too far for many prospective buyers.
Still, there’s an upside to out-of-reach home prices prompting sales declines—resale inventory has been loosening since December and hit its highest levels in over four years.
The latest NAR data shows inventory growing 3.1% month-over-month, logging 1.32 million unsold homes at the end of June. Supply crossed a key threshold, with 4.1 months of inventory available at the current monthly sales pace. Most experts consider a balanced market between four and six months.
Meanwhile, despite their appeal, new homes were also not invulnerable to the high mortgage rates we saw this spring.
Amid rates hovering near or above 7%, June sales of newly constructed single-family houses inched down 0.6% compared to May sales and plunged 7.4% from a year ago, according to the latest U.S. Census Bureau and HUD data.
The good news for prospective buyers is that the slow pace of new home sales continues to push up new home inventory. Even so, buyers aren’t biting.
“Many buyers are holding off on jumping into the market, hoping to see lower mortgage rates or lower home prices later this year,” said Hannah Jones, senior economic research analyst at Realtor.com, in an emailed statement.
Speaking of lower home prices, those shopping for new construction will be happy to hear that the median price