Trumpy's putting a 20% tariff on all Canadian softwoods coming to the U.S. in response to our dairy farmers being unfairly treated. Some Wall Street Einstein talking head on CNBC says lumber is only 2% of the cost when building a new home. I don't where he's building a house at. Friggin Middle East maybe.... not here. Thats BS. Thats going to pinch the builders. We get a lot of lumber from Canada. Existing home prices are once again going to rise. Wonder what the play is off of this? Its already old news... probably to fade any knee jerk reaction plays that happened at the open today. Hmmm. So much opportunity.....
I wonder if Home Depot and Lowes hedge their lumber prices. Like the airlines do fuel. And how would a new tariff apply to this? Just tacked on? HD and LOW can jack up their prices today on all existing inventory and any future inventory they have contracts on right? That goes straight to the bottom line.
Materials cost has no bearing on the cost of a new home. You pay the same for the stix-n-brix suburban shack as a real masonry building, despite materials and labor being many times more on the latter. Suburban construction is the Kodak disposable camera of homes, and people still pay like they're actual buildings in desirable locations. The lumber literally costs more per 2x4 to remove from a demolished home than the cost of new lumber.
I agree, the lumber is a very small percentage of the home cost, most of which is made up of the land the home sits on and labor. This article is saying the tariff could $1200 to the cost of a new house (http://www.cnbc.com/2017/04/25/trum...riff-could-cost-us-homebuyers-about-1200.html). That's pretty irrelevant in percentage terms.
Well, it's the NAHB that's making that claim...but it's plainly false. They might get $1,200 less in profit per new home, but market forces far removed from materials costs dictate home sales prices. It's instructive to consider somewhere close to a source of lumber and / or import location (say....San Francisco, Seattle, or Portland), and compare that to somewhere that it must be moved overland--maybe Des Moines or Albuquerque...And look at sales prices there. The bottom line is that if home builders try to pass on costs to buyers, buyers just go a mile further into the city to a more desirable location.
We're on the same page. Even if you use $1,200 as the biggest potential impact on price, that number is so small compared to the overall cost of the house that it's irrelevant. I agree with you though, it will probably be even less.
You have brought up some excellent questions, if you find discrepancy it would be perfect set up for a pairs trade.
I wanna see someone build a 300K house with $6K (2%) spent on lumber. Framing, trusses and sheathing with labor are about 17% for an AVERAGE house. And thats being CHEAP. Thats 51K right there. A four man crew for 3 days with a crane for the trusses is about 3K. So that's 48K in material costs... 20% of that is 9.6K Whoever makes these figures has never built a house.
Lumber is 10-15% of the cost of a stick built house, the 2% number is certainly bogus. But if you pay $300k for a house, typically at least $100k of that will be the land, so that leaves you paying 10% of $200k=20k in lumber. If the price of lumber goes up 20%, that's a $4,000 increase in cost. That's not terribly relevant in the scheme of a $300,000 purchase price. I mean you could save 2% ($6,000) just by negotiating aggressively with your dead weight loss real estate agent, which almost no-one ever does because it isn't worth the hassle.