2018 Could Bring More of the Same: Tight Labor and Costly Materials

In the bi-weekly newsletter Eye on the Economy, NAHB Chief Economist Robert Dietz provided the following overview:

After a mild 2016, economic growth gained momentum in 2017. New jobs continue to be produced and unemployment (4.1%) is low.

While this is positive news for housing demand, the unceasingly tight labor market conditions mean increased competition among employers for a smaller number of available workers. This is one of the reasons the construction industry continues to see an elevated number of open jobs: 227,000 in October, near a post-recession high. It also implies additional wage growth in the year ahead.

Builders can also expect continued growth in the cost of building materials. Since the beginning of the year, OSB prices have jumped 30%, softwood lumber prices are up almost 15% and gypsum prices have increased almost 8%.

Additional building material supply is needed as the home building sector grows. However, duties imposed on Canadian softwood lumber of almost 21% accomplish the opposite of what the industry and home buyers need. NAHB estimates that the tariff on lumber imports alone is responsible for a nearly 7% price increase and has already driven up the price of a new home by an average of $1,360.