Despite the pandemic, the United States is experiencing an extreme seller’s housing market. The momentum of this is so strong that many first-time buyers or movers are continuously getting outbid in pricing wars. To counteract this issue, many people who wanted to relocate or move into their own houses choose to construct or remodel their homes. However, because of the increased demand within both of these industries, it’s becoming challenging to purchase resources.
In this article, we’re going to showcase the increased levels of real estate and the impact it’s currently having on the construction industry.
The Increase in Both Real Estate and the Remodelling Industry
As suggested above, the housing market is currently booming despite the year we’ve all just had. The Global Property Guide indicates that the current market was up 43.2% in 2020, which is the highest recording in the last 35 years.
But why has the real estate market increased this much? During the pandemic, many interest rates plummeted at an all-time low to encourage buyers to purchase homes. Interest rates on your mortgages, short-term loans, and much more saw a dramatic decrease. The FED (federal reserve system) also strongly indicated that this is a “one in a lifetime” deal, as they’ll be raising their interest rates back up in 2022.
This tactic has persuaded many first-time buyers to act fast and take full advantage of this situation. However, with a deal like this, it’s clear that there’s an increased amount of competition. For first-time buyers, this isn’t ideal as you’ll be stuck with a budget as investors will quickly outbid you to increase their amount of assets.
Because of this, many people have diverted into either building or remodeling their homes. The Harvard University Joint Center currently operates the LIRA (Leading Indicator of Remodelling Activity). From their data, they’re to project the future turnover for the remodeling industry.
You can look at this as a snowball effect. Because the real estate is in a strong seller market, the same follows suit with remodeling and construction. The LIRA predicts that by the end of 2021, the industry will hit an impressive $352 billion. This is a rather impressive number considering in 2017, the remodeling market was estimated to be around $290 billion.
The LIRA uses three leading indicators to predict this market. These are:
- Home-price appreciation
- Current home sales
- Age of housing stock
By gathering this data and using past information on how the industry moves, they can suggest what we should expect during 2021 and the years to come. Although these three indicators predict a surprisingly great year, another massive factor is obviously coronavirus which can either increase or decrease the prediction.
How Does This Effect the Wood Industry?
As you’re able to grasp from the above, both the construction and real estate industries boomed in 2020 and will continue to do so in 2021. However, because of the enhanced amount of individuals wanting to move out, or remodel their homes, this results in many disadvantages for the wood industry. Here is how:
It’s clear. Many industries worldwide have experienced supply issues due to travel restrictions. But the wood industry is suffering something much more significant than this. Due to the increase of both the real estate, construction, and remodeling industries, the demand for wood has skyrocketed.
Wood is one of the primary construction materials, and this has caused an abundance of different delay issues for everyone in this field. The National Association of Home Builders (NAHB) chief economist tweeted that around 81 thousand houses are waiting to go under construction, but they’re waiting for materials. Because of this, we have a dramatic decrease in inventory as there are masses of stock on backorder overseas.
Because of the need for wood reaching an all-time high, the law of supply and demand takes place. This is the inverse relationship between supply, prices of goods, and demand. As the possible outcome of supply decreases and the demand increases, the cost of goods ultimately surge.
Currently, shiploads of wood are being sold before they even make it to the United States, making it very difficult to obtain it at a reasonable price. New builders or buyers wanting to purchase wood are currently experiencing problematic issues as it’ll most likely be sold to larger corporate companies at a much higher and bulkier rate.
When Will This End?
Unfortunately, nobody has a definite answer to this query because of the sheer volatility that has shown over the last year. However, Samuel Burman from Capital Economics believes there’s light at the end of the tunnel, just maybe not soon enough. Samuel thinks that that’ll be a sharp drop in lumber price towards the end of 2022 when transport is easily accessible once again. However, take this prediction with a grain of salt as there have been various forecasts from many industry professionals that are different.
As you can grasp from the above, there is a severe demand for all timber products. This is understandable as large building firms want to produce more houses due to the public having this global incentive to buy, and people want to remodel their homes because purchasing a house is too competitive. It’s a never-ending cycle.
But hopefully, this trend doesn’t last for much longer, and the industry starts to balance out again. As the world becomes more accessible for travel, fewer restrictions are in place during work, and the real estate market becomes slower because of interest rates flying back up, then I’m sure we’ll see this sharp drop that Burman predicts.
What should you do now? There are two options, you can pre-order your timber at an excessive price or wait until we see this expected drop. Either way, it’s best to work around whatever works for you as It really depends on your budget and urgency
To learn more about Covid-19 and the effects it’s having on our wooden flooring industry, check out this post.