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Spiking lumber, steel costs driving up the price tag for home builders and buyers

Rising commodity prices have resulted in five-digit price increases for buyers, Kim Hochhalter of the Home Builders Association of Fargo-Moorhead said.

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New home construction continues at a steady pace in south Fargo near Fargo Davies High School. David Samson / The Forum

FARGO — Those looking to build their dream home in the Fargo-Moorhead area have seen costs rise considerably since the onset of the COVID-19 pandemic.

Kim Hochhalter, the vice president of Building Concepts and the president of the Home Builders Association of Fargo-Moorhead, said it isn’t uncommon for home builders to incur a five-digit increase in the cost of a home. “We’re seeing an increase on an average home to be between $20,000 and $30,000 to the person that is building the house,” Hochhalter said.

Driving the dramatic spike is a nightmarish combination of events, chief among those being the pandemic.

Beyond COVID-19, though, a variety of other market factors have come into play. For one — despite the pandemic — the number of people interested in building a home “took (suppliers) by surprise,” Hochhalter said, leading to a squeeze on supplies.

Politics and weather have also had a hand in the rocky home-building market,

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Tariffs on Canadian-imported lumber have driven up costs for American home builders, Hochhalter said. Meanwhile, wildfires in California and Oregon as well as the recent freezing temperatures in Texas had a two-fold impact: increasing the number of homes needing to be built and razing domestic timber supply.

“With the fires in California and Oregon and the devastating things that happened in Texas recently, they’re anticipating a need for more materials,” Hochhalter noted. The timber lost in the West Coast fires could have built one million homes, she said.

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Though skyrocketing commodity prices have made home building a more expensive proposition, houses are still in progress in south Fargo near Fargo Davies High School. David Samson / The Forum

Lumber has seen the greatest cost increase since the onset of COVID-19. According to the National Association of Home Builders , lumber prices have risen 180% since last spring. Lumber futures contracts ( NYSE:LBS ) opened 2020 just north of $400 but closed at $952.60 Friday, March 26.

Given the volatility of the market, lumber yards can only guarantee prices for three days as opposed to 30 days as is typical, Hochhalter remarked.

Steel costs have also fluctuated significantly. “We were pricing out a house the other day that they couldn’t give us a steel price until the next couple of days because they knew they were going to be getting a price increase,” Hochhalter said. “We’re seeing things like that as we’re pricing out units for our clients.”

Overall, Hochhalter said that the complex convergence of market conditions means there are “too many factors” to pinpoint when costs will return to normal. As a result, home builders in the area are working with clients to blunt the impact of unstable commodity prices, either by modifying plans or holding off on construction to see if market conditions improve.

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Residential areas, such as this one near Fargo Davies High School, are growing quickly despite this past year's sharp rise in commodity prices. David Samson / The Forum

This year, Hochhalter is also anticipating that home construction may take longer than usual. “Between the number of homes being built and our subcontractors being able to handle the increase in homes…we’re anticipating adding an additional four weeks onto our new construction that normally we wouldn't,” she commented.

The convergence of market factors nationwide has made for an unsteady home-building market in the F-M area, but Hochhalter believes the situation will improve as lumber yards catch up with demand and Canadian lumber prices fall. “It all affects each other, but I do believe that there is a silver lining down the road,” she said.

With interest rates “staying down,” Hochhalter added that residents are still opting to build and the housing market in the metro area remains robust, even if demand is presently outpacing supply.

“It’s still a good time to build in our area, that’s for sure.” she said.

Related Topics: REAL ESTATEFARGOREAL ESTATE
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