The Construction Beat: Lumber prices fall, steel prices rise and the housing market cools as Congress brokers an infrastructure deal

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This week, we bring you the takeaways for builders from Congress’ infrastructure plan, what’s cooling the housing market and the latest price trends for lumber and another key construction material.

$1T infrastructure deal: What’s in it for builders?

President Biden last week announced his support of the $1 trillion infrastructure deal negotiated by a group of ten Senate Democrats and Republicans. The deal itself will cost $1.2 trillion over eight years, while producing more than $500 billion in new spending. The White House said it aims to fund the infrastructure plan by reducing the IRS tax gap, allocating leftover coronavirus relief funds and redirecting unused unemployment insurance funds.

The deal allocates $312 billion toward transportation and $266 billion for other infrastructure and construction. Several highlights include:

• $109 billion for roads, bridges and major projects
• $7.5 billion for electric vehicles and an additional $7.5 billion for electric buses/transit
• $55 billion for water
• $21 billion for environmental remediation

Currently, housing doesn’t receive any money in the plan. However, several of the spending targets in the deal align with President Biden’s campaign promises. Before entering the White House, Biden emphasized a desire to create new renewable and green energy projects. Should this bill pass, builders may expect: (1) a heavier consumer shift and desire for green building such as an increased demand for solar panels as well as carbon footprint calculators built into job contracts; and (2) an unprecedented number of federal clean energy jobs for the construction industry to bid on.

A party-line reconciliation plan is expected to be approved in July.

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Hot housing market appears to cool

Homebuying demand and sales slipped below 2020 levels for the first time this year as buyers continue to be priced out of the market. Despite the drop, home prices continue to rise with 54% of homes selling above the listing price after averaging 17 days on the market.

After months of a hot housing market resulting from low interest rates, pandemic-driven space shoppers, and stimulus programs, the housing boom appears to be cooling as buyers wait out the high prices and employees return to the office. It’s no secret the market appeared inflated, and now we’re seeing the adjustment to the next normal.

The next question will be how the Fed Reserve treats interest rates. In mid-June, the Fed indicated that the market was returning to full health, meaning we will likely see normalized interest rates affect home demand. However, any impact on new homes will likely depend on material costs. With so many buyers priced out by skyrocketing lumber costs, declining material prices may bode well for the new home market, even with slightly higher interest rates.

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Finally! Lumber prices begin to fall

Lumber prices soared to an all-time high in May due to both a seismic increase in demand and supply-chain disruptions fueled by the pandemic. Now, the price of lumber is finally beginning to drop. This change raises one pressing question amid a red-hot United States housing market: Why now?

One possible answer: the housing market and lumber hoarders. With soaring prices for lumber and beyond along with a demand increase the industry had not prepared for, the price of new homes increased dramatically the past several months. As a result, many would-be buyers were priced out of the market leaving builders who had stocked up on lumber with a leftover supply. These builders – normally buyers of large lumber quantities – are now selling to other builders from their own lumber stockpile, thus driving the overall price of lumber down. Despite its decrease, the current lumber price remains three times as high as the typical cost for this time of year.

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Infrastructure plan may drive up material prices

Lumber hasn’t been the only rising price affecting the construction industry. After President Biden’s infrastructure plan announcement, July delivery for hot-rolled coil (a key steel product used in construction) rose to an all-time high of $1,801 per short ton in New York, tripling its price in the past year.

Rising prices have become the norm for the entire construction industry and specifically for home builders in 2021. As discussed in a previous Construction Beat, constant shortages and supply chain disruptions have inflated costs for the entire market. While lumber prices begin to cool, builders can anticipate rising steel, copper and iron ore prices as the Biden administration’s infrastructure plan progresses.

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