Home builders won’t pass falling lumber costs on to buyers

Will pad profits instead as wood futures plunge by two-thirds

National /
Jul.July 14, 2021 09:50 AM
KB Home CEO Jeffrey Mezger and Lennar co-CEO Jon Jaffe (UnMktg/Wikimedia, Lennar, iStock)

KB Home CEO Jeffrey Mezger and Lennar co-CEO Jon Jaffe (UnMktg/Wikimedia, Lennar, iStock)

After a record surge, lumber prices have begun falling, but home buyers aren’t likely to reap the benefits anytime soon.

The price for two-by-fours in May was more than double the previous record, but have slipped since, and lumber futures have plunged by two-thirds, according to the Wall Street Journal.

Rather than pass on lower costs to buyers, home builders plan to widen their profit margins — because they can. With demand for homes in record territory, buyers are not looking for bargains.

The publication reported that Jeffrey Mezger, chief executive of KB Home, said on a conference call that the decision “will depend on the competitive landscape in each city. But our hope and expectation is we’ll take it to margin.”

Lennar co-CEO Jon Jaffe said his company also expects cheaper lumber to boost profits, as the firm saves about $1,700 per home for every 10 percent drop in the cost of wood, the Journal reported.

Economists say the increase in margins is what usually happens after a spike in commodity costs.

DIY builders and retail buyers can still capitalize on the falling cost of lumber. Home Depot has lowered prices on lumber at stores across the nation, the outlet reported. Eight-foot studs in Ohio that cost $7.48 on June 21 were priced at $6.25 on Tuesday. Those retail prices remain high compared to historical levels.

When markets closed Tuesday, July lumber futures were at $599 per thousand board feet, down almost two-thirds from $1,711.20 in May. September futures were at $649.90 — only $10.90 above the pre-pandemic high.

[WSJ] — Holden Walter-Warner





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