Lumber prices are falling as demand remains high.

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Lumber prices are falling as demand remains high.

Nov 30, 2021, 11:53:11 AM Business

Here's some good news for property investors: Lumber prices, which have risen to stratospheric heights in the last year and set new highs in May, are beginning to fall. The price decrease indicates that material prices and labor requirements for construction are beginning to settle after a tumultuous year, a trend that should continue.

Prices are declining due to a variety of variables, all of which are driven by the fundamental economic principles you studied in high school: supply and demand.

Demand has begun to diminish, most likely as a result of increasing lumber prices, which have resulted in project delays. In May, new house buildings fell nearly 9% from March, when the country saw record highs in new housing starts. Home improvement sales are also down more than 8% during the same time period.

There is more lumber available now that demand has decreased and output has returned to pre-COVID levels. Furthermore, firms that stored timber to meet demand during shortages are now offloading it to avoid incurring a loss.

While decreased pricing may take some time to filter down to real estate investors, the prospect of cheaper material prices makes starting a renovation or new house building project significantly more appealing.

Although prices have begun to decline, lumber remains prohibitively costly, in some cases more than twice what it was in spring 2020. Nonetheless, many analysts predict that the declining trend will continue into next year.

As a real estate investor, you may learn a few things from these ups and downs. To begin with, humans have a tendency to generate self-perpetuating issues. Consider the big toilet paper problem that followed the development of COVID-19, causing shortages despite the fact that there was plenty of toilet paper to go around and toilet paper demand had not increased.

When we didn't know how COVID-19 would influence the house construction business, there were true timber supply shortages due to mill closures and companies limiting output in preparation for a probable housing market meltdown. Nobody anticipated at the time that the pandemic would cause a surge in demand, with homebound homeowners making upgrades and housing demand reaching unprecedented heights in a closed-down globe. Hoarders who stored lumber to assure enough for their personal purposes exacerbated the problem, pushing up costs and increasing shortages.

We are now entering a new phase, as the pendulum begins to swing in the other direction, and commodities prices and supply of materials such as timber, bricks, and factory-made products like cabinets and windows appear to be leveling out.

Accepting unpredictability may be the most essential thing to take away from all of this.

Everyone wants to know that things will turn out the way they want them to, yet we live in an unpredictable world. This is especially true in the aftermath of COVID when practically every element of the economy delved into unexplored (but sometimes extremely advantageous) seas. Nobody has a crystal ball to predict where things will go next.

Despite the fact that we must all live with uncertainty, there are techniques to reduce risks. For example, in the last year, new Corridor Funding clients have added 20% to their rehab budgets as a contingency to account for fluctuating material prices.

Consider the larger picture as well. Demand for housing in Texas, like in many other markets around the country, remains robust, as do market fundamentals such as employment growth, individuals relocating to the state, and an infusion of businesses moving here.

Even in an unpredictable environment, it is possible to perform well as an investor if you take measured risks, plan effectively, and carefully acquire new assets. Maintain your emphasis on locating attractive offers that will enable you to earn from a fix-and-flip or BRRRR (Buy-Rehab-Refinance-Rent-Repeat) plan.

Corridor Funding is here to assist you through the process once you've found it.

Key Takeaways:

The recent decline in lumber prices, based on existing patterns, implies that the commodities and labor necessary for construction are beginning to normalize.

Demand is high, particularly in Texas. The housing boom is not slowing down significantly as a result of high timber prices, and it should be supported by decreasing material costs.

Investors in residential real estate may expect to perform well with ongoing strong demand and judicious property investment, even with higher-than-normal lumber and other material prices.

In this world, the only certainty is uncertainty. Reduce your risks by making sensible purchases and planning for price fluctuation in materials.

Be mindful of market cycles and plan ahead of time. Don't let a transitory circumstance like higher timber prices deter you from investing — despite greater building costs, demand remains robust, creating a climate in which a refurbished house might be even more lucrative. Take into account all the factors.

Published by Martina Lewis

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