Lumber rally cools with transport snarls easing, buyers balking | Hacker News Reader

Lumber rally cools with transport snarls easing, buyers balking

bnnbloomberg.ca

186 pointsclove239 comments

>Futures tumbled to US$974.80 per 1,000 board feet on the Chicago Mercantile Exchange on Friday, heading for a sixth straight decline.

For comparison, it was $403.60 at the start of 2020:

https://tradingeconomics.com/commodity/lumber

This. Lumber prices are down 30% since March 1st, but still 250% up since COVID.

Isn't it 150%? Percentages are hard.

If pre-covid index is 100, the current price is 250, which can be expressed as either 250% of the previous price or a 150% increase in price (up by 150%). English is hard.

Ya, the price bubble hasnt really burst. It just deflated a little but remains a bubble.

Why do you say lumber is a bubble? It seems to me all of the lumber being produced is being used, and lumber is a limited and valuable natural resource. I don't see how lumber supply suddenly increases or lumber demand suddenly decreases.

> lumber is a limited and valuable natural resource

I assume this is still true, but a year ago when I unfortunately had to start a large lumber project the stumpage fee, aka the price a tree owner gets when they sell their tree to be logged, was at all time lows. The entire price increase was at the mills due to

- supply dipped because everyone thought the economy was going die and preemptively shut down mills in 2020 but actually the opposite happened

- demand soared as everyone wanted to build houses or do renovations

- lastly, minor labor shortages and covid outbreak induced stoppages

On the demand side there is a spike basically from low interest rates plus everyone trying to move into a house over the past couple years. But that’s starting to chill out as the house prices got pretty prohibitive and interest rates are looking to climb. Plus there’s the speculative market which responded to rising prices by buying/raising the price, and will at some point, maybe right now, swoop back down in line as signs point to a downturn and speculators bail.

You’re right though that it’s hard to expand the throughput of the supply side since even doubling, say, the number of planted trees won’t pay off for at least 20 years in the case of fast growing trees like poplar, and longer for harder woods.

the price is a bubble not the volume. As supply goes up then the price will drop as demand is staying the same or dropping a bit depending on who you ask.

Lumber is not an indicator of much, because distribution is a bit artificial. A lot of places have been sitting on lumber to keep prices high - a kind of distributed/collective collusion.

I don't know for sure, but I believe the same thing happens to gas prices, whenever there is a reason for gas stations to jack up prices, they do, and justify it by 'oh there's a war in XYZ country'. Or if the headlines say 'Oil Shock' - then the bump up prices even though the pricing has not hit them at all. They can just get away with it, and they know it. So they all just do it and hold out until some of them 'blink' and prices come down.

As far as the 'new home' anecdotes, I'm not sure if NYC/SF are ever very good barometers overall. Some places are designed to have demand. Just pop out into the exaburbs and see what's happening there. Or Orlando. Or Atlanta. etc..

I expect this to be the beginning of a recession. A lot of consumers spending is based on the thought that their home is going up in value.

Just anecdotally, we went out to eat at a place we hadn't been to since before the pandemic. Their prices have doubled. We spent $50 on lunch.

Is there such a thing in economics as "pent-up inflation"?

As in, the economy keeps rolling along with "shrinkflation"-like phenomena absorbing as much of the increase in inputs as possible, until it passes a tipping point (in this case propelled by Covid-related adjustments) and all of a sudden prices shoot up.

It would be interesting to see if there's any literature on this phenomenon.

I wish I knew if there was any lit on this, but I think the same way. When the cost to own a given size house is double the cost to rent that house (in some VHCOL places like Seattle that is true at the moment), eventually people are just gonna opt out and rent.

Anecdotally, I've basically opted out of any sort of food that I don't prepare myself. Although not immune, Costco has avoided the same level of inflation as other grocery stores and especially restaurants, so I just shop there and save money because the prices for prepared food has just gone through the roof.

By shopping weekly ads and couponing, and being more willing to make meals from whatever is on sale (I made my first ever pot roast last week, and it was divine) -- I've cut my food budget by 50%. Granted, I wasn't being that selective before: I used to buy things like $8.99/lb 'air chilled' chicken breasts, and now I'm buying $1.99/lb value packs. I get no complaints at the dinner table, so I'm unsure what I was paying for before. Between that and limiting meals out, I'm saving more than I thought I would.

Grocery stores are beginning to level-up their "price optimization" strategies (car insurance companies have been doing it for much longer [0]): people who work for it pay less. A box of cereal is $3.99 on the shelf; with club card and digital coupon it's $1.99. That's one item down 50%. You scale that methodology to your entire shopping trip, and your dollars go way further.

[0]: https://www.npr.org/2015/05/08/403598235/being-a-loyal-auto-...

I have gotten used to just not eating meat every day. I am not refraining out of ethical or health reasons, I'm just happy with tomato sauce on my spaghetti, for instance.

I've noticed that potatoes are really cheap, relatively, like under 50 cents a lb. It has assuaged my unhappiness at pasta being over $1/lb which is my mental anchor.

I do use the loyalty card and look for the things that are on sale by the largest amount, but I don't bother with coupons, because all I see are for things I don't want.

Pasta a little more than doubles in weight when cooked so potatoes are probably more expensive than pasta, which is usually more than rice which triples in weight when cooked.

Of course nutrition is a different matter, making potatoes or brown rice better choices than in a simple weight calculation.

Mostly unrelated, but few years ago I realized that buying the $3/box pasta has a trivial impact to my food budget but it really does taste better and soak up sauce better (due to the slower extrusion process)

Depending on how you plan on cooking the chicken, air chilled would have no discernible difference. For example if you're making say pulled chicken sandwiches, you're cooking the chicken in a vat of water.... https://www.thekitchn.com/whats-the-deal-with-air-chilled-ch...

I did this a lot for the last few years, but I just have seen those kind of deals for a few months now. At the very least, they are a lot less common than they used to be. That store brand cereal that used to go on sale for $1.99 is going on sale for $3 instead, but that’s if they are able to stock it at all (so I’m often paying full price and I’m just happy they have it).

Where I live it is $2000+ to rent a 1 bedroom apartment, which is about the same as the mortgage on a 4000 sq foot home on an acre that we purchased this past summer. I’ve been thinking that everyone that can will start buying since rent prices are crazy high.

Do you live in a tech hub / city? I'm living in a "rent cheaper than owning" tech city and it just seems like homes are being snapped up by DINK couples (both working in tech) who want to build a real estate portfolio. Hard as a single person trying to just get into a starter home :/

I do not live in or near a tech hub.

"sticky prices" and "menu costs" might be terms you're looking for

That was probably closer to the real price if your lunch.

We’ve had a glut of restaurants all up and down the “star level” here in Madison, WI. I think that is true in many cities.

When you account for real wages and costs, many of those places shouldn’t and wont survive over the next few years. We don’t need 6 dollar burritos delivered for 15, and we don’t need five places found farm to table for 30 bucks a plate. If that means service and cooks and dishwashers have to work three jobs in that world, to hell with it.

We may finally be adjusting to the fact that it isn't reasonable for the average household to be paying someone else to make their food most days.

A "community kitchen" model should be vastly more efficient.

There's a vast gulf between a soup kitchen somewhere cheap and a sit-down restaurant in the middle of the city with high quality but high rents and high wages.

McDonalds is still going to exist and be cheap enough to eat at a lot.

Hole in the walls, with relatively cheap rents and family owned with takeout and streamlined overhead will also still exist.

Eating out is strangely expensive in most places in the US, compared to many parts of Asia at least. I'm not sure why. I considered density as a factor but if anything cities cost more in the US.

>Eating out is strangely expensive in most places in the US, compared to many parts of Asia at least. I'm not sure why. I considered density as a factor but if anything cities cost more in the US.

The same reason everything is more expensive in the US; overhead and wages. The economics of running a family restaurant in a building you've owned for generations is completely different than that of a corporate fast casual place that pays wages and rent.

I don’t think this is the case at all. Specialization provides tremendous value, and making things in bulk is far more environmentally friendly than everyone making things individually.

Milwaukee area checking in!

Has Madison seen an increase in restaurants compared to a couple years ago? I've only been here a year but in the last place I lived, almost everything seemed to shut down during COVID but as things eased up new places opened up to about 120% of the old capacity - the end result being everything seemed to have reduced hours because they couldn't get enough business to get enough staff. From what I've heard from friends it hasn't gotten any better. Plenty of restaurants but a lot of them are only open 2-3 days a week so you end up with servers et. al. having 2-3 part time jobs.

Yeah I’m seeing $20 sandwiches in NYC now.

Just last week I've spent 20 bucks for 4 balls of ice cream. It felt like being mugged...

Who forced you to buy the ice cream?

If they wanted to buy ice cream and that was the price, then they had to pay it or they wouldn’t get ice cream.

Are you saying there is a lower cost ice cream store across the street?

There's a convenience store chain where I live that has a "flavor of the week" available at $3.39 for a half gallon.

But if you want to lose weight, perhaps it's better not to know.

They're saying that it's pretty silly to compare buying ice cream to being mugged. If it's too expensive, don't buy the ice cream. The price of ice cream isn't an invariant, if nobody buys it the price will decrease. If nobody has a problem paying $5/scoop for ice cream, that's what the price is going to be.

There's nothing silly about it. It's just a metaphor. It's more incredulous that people have a problem with figurative speech like this than the comparison itself.

Its called hyperbole. Seriously HN can be so pedantic sometimes.

Hyperbole, like sarcasm doesn't come across well on the internet.

American scientists have actually mathematically proven that it is impossible to detect sarcasm in the written word.

>American scientists have actually mathematically proven that it is impossible to detect sarcasm in the written word.

I feel like this is sarcasm, but I guess that my inability to know proves the point

I went into a bar and asked for a glass of wine they had already poured it into a plastic cup before informing me it was 19 bucks. I was mugged.

Sometimes prices are inelastic after you've stood in line wanting ice cream. You have to price in human emotion. Next time he'll probably find a cheaper place.

Sounds like typical NYC to me, as someone from the rest of the state. Every time I've eaten in NYC it's been mediocre and expensive.

To be fair, there's a lot of incredible food here too...

$20 is the new five

I heard the phrase "Yuppie food stamps" meaning ATM-dispensed $20s, a long time ago, and didn't people start using the term "Yuppie" in the 80s?

Seeing the same things here, lunch is $25+ a person at casual sit down places. Some have even done away with lunch menus so you’re left with lunch portions for dinner prices.

This has to be a major city right?

Dayton, Ohio. Depends on your definition of major.

Feels like places trying to make up for any covid losses over the last few years.

prices for some food items have definitely doubled and restaurant sure haven't been shy about raising prices. My favorite chinese place has gone up 70% in a year. So much that I only go there once a month tops.

Everything's been normal for me, or I just haven't noticed.

Same. This past week I went to a place where they are charging $18 for a chicken sandwich that used to be $8-9. I couldn’t believe it.

Do they expect a 20% tip on top of it?

What? We're just returning to December 2021 lumber prices. Lumber is just one input into home values.

https://www.nasdaq.com/market-activity/commodities/lbs

Are there stats showing this? This would seem to me to be a very strange thing to base every day spending on.

Also the market should cool down from its current ridiculousness, and I wouldn't call it a recession if people stop throwing up crazy bids from FOMO and houses have to start being competitive to sell.

well their homes aren't going to go down in value lol

There are plenty of houses that lose money, even in super nice locations, not factoring in maintenance / not tracking inflation.

The only houses I've seen decrease in value are custom mansions in the $10m+ price range. It's similar to custom cars. People with that much money for a house are likely to build their own.

In the $500k-$5m range I don't see any houses losing value. At least not on any significant scale. Given a 30 year time period, and no other outlying issues (oops, your house is in a liquefaction zone), your house is going to increase in value.

Not necessarily in real money terms. Population isn’t growing much, and if there isn’t a massive money pump pushing down interest rates running (which is getting turned off shortly), the math gets a bit grim.

Most if that appreciation is due to the steadily loosening standards since the early 80’s when a similar inflation spike drove up interest rates and gutted the housing market.

Improvements always lose value. Land on the other hand, usually not.

From the article:

> “I think the price decline is tied to the DIY (do-it-yourself) sector slowing down due to high lumber prices, with people spending their money on other things like travel,” said Russ Taylor, president of Russ Taylor Global in Vancouver.

So their expert analysis is that lumber prices are falling because lumber prices are high?

Eh, I could see it. A lot of the lumber price increases were due to logistical issues up and down the supply chain, those same issues would cause this kind of lag. If supply adapted fast enough it wouldn't be an issue, but if supply adapted fast enough prices wouldn't have gotten that high regardless. Besides, things are weird right now, consumers aren't as able to act rationally because they aren't used to it.

It actually stops mills from working if high prices stop people buying, which turns the price down until mills can restart operations.

The best cure for high prices are high prices

Reminds me of an old joke - the more suicidal people there are, the less suicidal people there are.

That isn't always obvious to people, but it's true, even with things like housing.

Sure. Prices hit an unsustainable level, soaked up the small bit of demand at the peak, and then declined to find more demand. Econ 101

In all fairness to OP, Econ 101 would hold that for the price to change you'd need a supply or demand shift. So if prices got as high as they did, the prices alone wouldn't bring it back down. By 102, of course, slight (or in the current lumber market, enormous) lag in the supply chain and largely habit-driven consumers make for more bumpiness on the way to equilibrium.

Lumber production responds slowly to market demands, as it takes a while to cut down, mill, dry, and transport lumber. It’s entirely possible that rapidly changing consumer demand causes wild cycles as the supply chains struggle to scale up and down in response to consumers who are likewise reacting to price changes driven by their own behavior.

I'm building instead of buying. Unless you are dead set on a particular neighborhood it makes no financial sense to buy anymore. You can build a brand new 300k house on a 100k lot and have a 500k home with positive equity the moment you close.

No offense, but if there's a 100k lot, it's because noone wants to live there.

No offense, a statement like that (and the OP) without factoring in location means nothing. There are definitely 100k lots in places people want to live, some of them are pretty big. While everyone may not want to live there, there will be plenty of buyers.

Exactly this. A 100k lot in PA is a vastly different thing than a 100k lot in NYC.

Every housing thread seems to be people wanting to discuss their locality first, anecdotes second, and then a diceroll for the rest.

The Essential Craftsman spec house recently sold for $610k.

According to the public history the undeveloped lot looks to have cost 40k in 2017.

Does this qualify as a place nobody wants to live? Last I checked the PNW was a nice place.

https://www.trulia.com/p/or/roseburg/3044-nw-daysha-dr-roseb...

I was referring to undeveloped lots as per the comment I was replying to. At that price, it would have already been developed.

Most cheap undeveloped land that is for sale has some issue with it (unbuildable, access, wetlands, flooding, one or more utilities unavailable, nuisances - noise, terrain, etc).

FYI- the linked property has the land assessed at 133k. It's not purchasable as a 100k lot if there is a house on it.

Edit - doing more research the "Essential Craftsman" house is on Farm/Forest zoned land. It may have been recently rezoned to build residential on.

Two economists are walking down the street and one of them notices what appears to be a $20 bill on the sidewalk. “It’s not a real $20 bill,” the other economist declares. “If it were a real $20 bill, someone would have picked it up off the sidewalk already.”

Unless it's prefab house(aka modular home), it's gonna take you at least 6 month from the signing the contract of getting a lot to the house fully built. Labor market have been really heating up too - most of the builders are focusing building $1MM+ homes in premium districts definitely not worth their time to build a $300k home when they can build a million dollar home. If you are building the home yourself, good luck it's gonna take longer even if you are not working full time and can build house full time.

>Unless it's prefab house(aka modular home), it's gonna take you at least 6 month from the signing the contract of getting a lot to the house fully built.

Fully aware it's going to be a 1yr+ long process. But after going through the housing market gauntlet and flat out refusing to do the insane stuff it takes to even get an offer accepted now (waived everything, 10%+ earnest money, etc., etc.) I couldn't care less about the wait.

Whats weird is, in Marietta GA, my neighbor told me yesterday that in project that my neighbor started 3 months ago - prices have almost doubled since he started the project. Which means pricing and availability vary wherever you are.

Rockmart GA, pretty much the same story here. Wonder if consumer prices are delayed relative to futures.

Is this general inflation of all building supplies, or specifically just lumber? I'm curious if anyone knows if there are alternatives to lumber that would be more feasible at these prices.

Metal studs are popular for replacing 2x4s in walls. They have a lot of advantages over standard white pine.

They're still more expensive, but $11 (metal) vs $9 (WP) is less of a premium than the usual ~2x.

Maybe there is an opportunity here for someone to create a reliable website/dashboard that shows the status of futures, pricing, etc. and can charge for access?

Maybe I can build that bookcase now....

Two of us!

I was busy and never got around to purchasing lumber when the price of a 2x4 dropped to $3.50-ish. I didn't realize you had to time your purchases. Now I sit here, cut lists ready, wondering who is buying 2x4s for $8.30.

But the price will come back down... right?

Yeah, I'm finishing a basement and the select 2x4 studs were over $9 last week. So I went with economy studs for $4.35 but you have to really pick through them to get good ones. I went back to get more and now they are sold out - other people probably figured out they can do similar. If this news holds maybe we can see a drop soon at the box stores.

It's simply too expensive to do any sort of renovations at the moment. Lumber prices are just a part of it

Time to build.

I’m not buying this, at least not for desirable areas. In the last 48 hours I’ve seen 6 houses close. Every single one in under 30 days (signifying significant, if not entirely cash offers), and each roughly 110-185% of asking price. Yes. One house I tracked on Redfin listed at $722k and sold for $1.31m.

Most houses in the average zones are going for well over asking price. It’s not even a matter of competitive offers. It’s almost as if the asking price doesn’t even matter. The market is essentially converging on what can only be described as silent auctions. You come in with the highest amount you can pay or whatever you’ve been prequalified for and hope it’s high enough. But when 20-50 people are bidding on a single house it’s unlikely you’ll ever be near the top.

It’s really hard to explain to people that aren’t following the market just how bad it is.

This is anecdotal, and the market deserves to be addressed holistically. In major metros, city councils refusing to permit new construction limits supply artificially and pushes up prices. It may well have fallen outside major metros where cost of construction is a bigger portion of the price of a house. However, consider that zoning rules conspire to make houses outside metros bigger even if cheaper per square foot.

[edit] btw, percent over ask doesn't mean too much by itself - after all the market in the region may default to setting asks below expected price. That's just how it's done in some places. [1]

[1] https://www.homelight.com/blog/price-my-home/

I do't think its useful to "address the market holistically". The housing market is heavily variegated, and any honest assessment must take this into account. It's not one market, it's many different markets, and possibly sorting them even into just a binary classification makes more sense that treating it as if it's all the same.

If you look at markets with lots of new construction, you'll find that prices are increasing more rapidly (not surprising, since new construction is driven by rising housing prices). Right now there are challenges in procuring labor to build new housing as well as procuring material, but permitting isn't really a bottleneck (at least in my rapidly growing region in Seattle, you only need to go on a walk to see all the new townhomes being built).

Mortgage rates went from ~2.5% to 6% in a matter of a few months. People generally feel that given the low supply of housing that prices wont go down, but instead will stagnate with higher rates. If that's your belief you'd be in a mad rush to buy a home as your primary residence before rates go even higher.

Personally, if rates continue this path housing prices will go down. A 500k mortgage at 2.5% has the same monthly payments a 330k mortgage at 6% or 225k at 10%.

I struggle to reconcile this with the number of cash buyers, though. Higher rates aren't going to affect their ability to pay.

Most cash buyers are flippers doing it with bank loans. They’re in a very vulnerable position right now. The smart ones will get out and stay out. Most are greedy.

>They’re in a very vulnerable position right now.

Why? aren't the rates locked in for the duration of the mortgage (25/30 years)? The only way I can think of this going wrong is doing your budgeting when the rate is 2.5% and then not taking the rising rates into account, but presumably the bank will cut them off first.

Flippers either buy with cash, or they do all interest loans, and really factor in how long they take to flip the house. Interest rates or going long on a build can really dig into profits. You can't get a 25/30 year loan on a flip as it's not your primary residence, and you're limited on the number of those you can have per year.

Flipping implies selling the homes at a profit, which is unlikely in a rising interest rate environment.

So I figured this out, there are now companies that will give you all cash from a loan for a fee.

Wait wat?

With a purchase mortgage the bank is involved in the transaction in multiple ways, for the bank's protection. Appraisal, inspection, etc. You're saying there is some magic wand to be waved that makes the bank not care about its exposure anymore?

Locking in a great rate seems misguided if the low rates were inflating prices. You can always refinance a high rate but you can’t renegotiate what you paid 5 years ago.

It’s even worse for the all-cash buyers since they’re not sensitive to the interest rate anyway… but they probably have other motivations for parking their cash in real estate.

Is that in Canada? In the USA, Freddie Mac says 30-year fixed rates are typically 4.42% It took a year to get there from 2.75%, and it never hit 2.5%.

I locked in 2.49% rate on a 30yr fixed two months ago in the US basically betting that rates were about to skyrocket and I wouldn’t be able to buy again for a long time at a rate this good. To get a rate that low you have to pay it down in points. Otherwise it would have been closer to 3%.

I don’t expect Bay Area nimbys to get any better, but there is a risk people just leave the bay (most of my friends have left). You can get way nicer housing in austin, Denver, Miami, dc, LA, San Diego, etc. for cheaper. Socal has even better weather and with remote work is super nice.

Florida is also way nicer for taxes. I forgot Seattle too.

And here I am, relieved to have locked in 3.75% a couple of weeks ago instead of 4.75%

A good rate is anything that let's you sleep a night.

I know it's mostly platitude but I don't have the time or the depth of knowledge to time mortgage rates or the market so I mostly ask myself if I can afford it.

Still a good rate imo - loans are a decent hedge against inflation. Plus you have a place to live without worrying about rent shifts (main risk is if you’re forced to sell for some reason at a bad time).

I’m happy we decided to do it.

Just poking around online it seems 5% isn't uncommon, some higher, some lower and it has happen relatively quickly. I'm not surprised if people who have a locked in rate are just eating the cost of outbidding to win.

Bankrate says this though:

On Sunday, March 27, 2022, the national average 30-year fixed mortgage APR is 4.570%.

Just for a perspective from a different world...

I live in a development (but not a recently constructed one) where many of the homes are almost identical, and a few years ago were assessed at around $170K and sometimes sold for less.

Prices seem to have risen to almost $220K, and paused there, but I notice that new sales are going faster, like days instead of weeks.

I know this because my real estate agent continues to send me notifications of new listings and sales, probably because I unconvincingly denied being a flipper (I'm not!) at the time I bought mine.

When the press says "cools" they often mean only "decelerates". Prices may indeed still go up. However, interest rate changes are working against house prices at the present time.

One in five houses currently listed in San Francisco has had its asking price reduced at least once. Sale prices are still high and time to close is still low, though.

There are a lot investors out there right now. I get cold calls daily. As interest rates climb and supply shortages improve, I expect things to cool off. Probably not until after summer as sales always increase up until schools starts back,

A close friend just bought a house in a largeish west coast city and it was as you described and worse than my experience buying a house about 1.5 years ago

There's a big difference between the market of "ready to move into" houses and new construction. Lumber prices mostly impact the latter.

higher socio-economic areas tend to go up in value first and go down in value last.

the amount they shift tends to be a great deal more in the up direction (percentage) and less in the down direction as well.

A rising tide does NOT raise all equally.

Higher socio-economic areas tend to have more stable price fluctuations, because they are sure bets and a lot of their value has been priced in (barring the whole region rising as is happening right now). Lower socio-economic areas are more risky: you could more likely get a deal or a horrible situation, leading to a lot more volatility. Gentrification takes time to work, and isn't always successful.

because the housing market is not uniform. high value areas are resilient to corrections

Resilient to corrections? Nothing is. They are just the last to correct.

Ever heard of lead time? Lumber price falling doesn't mean housing costs will cool down immediately. The new houses being sold told and being built now are being built with lumber prices from ~6 months ago. It takes time for things to show. So if the housing market will cool, it will take a few months at the very least. Until then, the madness will keep going on for a while.

Speaking of auctions...why aren't homes just sold via normal auctions? I would imagine you would end up with a better price than everyone giving their "best and final" offer - which may not be their best and final if they are given a chance to increase their bid slightly to get the house.

Because price isn’t remotely the only factor.

Time to close and guarantee of funds and waiving inspection and so on all create custom contracts for each sale.

Some peole would take $500k closing in 30 days over $535k close ng so n 90 days with some contingencies and others would not.

That's quite common in Australia. Is it not in the US?

Yes unless something has changed with the root issue, zoning laws, prices will probably continue to rise.

Prices have risen with falling interest rates. They will fall with rising interest rates.

Zoning is a smaller part of it (though more significant in some areas than others).

I see how low interest rates increase demand. But in my opinion the lack of supply is a much bigger issue. Most people have most of their net worth in their homes, and spend their political will ensuring nothing new is built. That and related phenomenon I put under a broad “zoning laws” statement. We need to incentivize building more, taller. That’s it.

You can change zoning laws tomorrow (California just did) but that won’t create any housing. It needs to be constructed at an affordable price.

All that really means is the house was listed below its market value to drive more bidding

I sold a house last week. Within 3 hours I had 2 offers. Within 36 hrs we sold for 20% over asking; I had 8 offers in that time.

There wasn’t even a negotiation phase, I eventually just took one because I was tired of showing the house.

Could this be people shifting investments from other asset classes toward real estate, to be more inflation-proof?

> . One house I tracked on Redfin listed at $722k and sold for $1.31m.

do you have a link by any chance?

Sure. I have a few.

$220k over ask- https://www.redfin.com/CO/Centennial/7405-S-Quince-Ct-80112/...

$230k over ask - https://www.redfin.com/CO/Centennial/7963-S-Clayton-Cir-8012...

$297k over ask - https://www.redfin.com/CO/Boulder/5640-Table-Top-Ct-80301/ho...

$269k over ask - https://www.redfin.com/WA/Seattle/3829-Ashworth-Ave-N-98103/...

$311k over ask - https://www.redfin.com/WA/Bellevue/12810-SE-29th-St-98005/ho...

$425k over ask - https://www.redfin.com/WA/Bellevue/90-145th-Pl-SE-98007/home...

Looks like they changed the record history, but this was the one I was talking about - https://www.redfin.com/WA/Bellevue/2004-144th-Ave-SE-98007/h...

I’ve been looking this the Denver/Boulder area. 15% over asking is pretty much normal at this point, and I’ve seen more than a few places go for 17-20% over. I was approved through a regular lender, but had to find another lender that offered an all-cash option since that’s what’s winning everything around here.

15%+ over asking, all cash, limited to zero-inspection, and increasingly 30-60 post closing occupancy agreements. Rough market.

The strange part to me is the appraisals, I used to worry about an appraisal gap, but I have yet to hear of a place that doesn’t appraise for the final selling price. When places are going 15-20% over asking, and appraising at that, you don’t have to worry about the gap, but I do raise an eyebrow at the process.

What reasonable place do people live where the price of lumber has anything to do with housing?

California property market is a full on casino. When you buy here all you're getting is a leveraged bet that you'll be able to sell it for more to a greater fool. It has nothing to do with fundamentals especially not the cost of materials.

I don't know if you keep track of these kinds of stats in your thinking, but the population of the US grows by 1M people per year, even now as a relatively middle aged country. That's 1M people looking for housing, jobs, places to succeed, just as you (I'm guessing, like I) have.

They want housing they can afford, to be built at a cost they can afford, with raw materials and labor they can afford. And they want the career paths and successes and joy in life that the people before have had.

Unless you somehow declare that they can't have access to the same standard of living as you who came before, they're going to be paying for and competing for the same resources in the places that provide the best jobs and futures. And if the lame answer is "well you just got here later than I did" they're going to be very unhappy with it.

There is no "why can't we just keep everything the same". You cannot keep the lid on that boiling pot forever. And that's just the US. Think of the billions of people waiting to join that ladder.

> but the population of the US grows by 1M people per year

If they are all 0 years old, it doesn’t affect housing until about say 20 years later. If they are all immigrants over 20 then it does immediately. Demographics matter. Population growth in 2000 was about 1%, which is a lot more than your current 1 per μ annum figure.

A better question would be to ask the rate of growth for the US adult population.

Not California.

Price of housing in VHCOL areas like the Bay Area, Seattle, and NYC is driven by the price of land. Price of housing in LCOL areas like Houston and the Midwest is driven by construction costs. You can always find more land in suburbia; the biggest expense is the cost of building a house on it.

In California, there is plenty of land. They just choose not to use it. See Coyote Valley near San Jose. Just empty unused farmland turned into “open space.” That land is literally a whole lot of nothing while people down the street have to pay millions for a basic house. Even if you did own land, you can’t build anything on it without going to permitting that can take over a year — assuming they let you do anything at all. Look at all that land along the 280 between San Jose and San Francisco.. plenty of land: but they won’t let it be used for housing. Palo Alto and East Palo Alto— plenty of land but East PA has ridiculous rent control and Palo proper has a visceral fear of multi family housing.

The problem in California isn’t land, it’s politicians.

> The problem in California isn’t land, it’s politicians.

You mean the voters who vote for the politicians that do what they want vs. not vote for the politicians who would do what others would prefer? It is no secret that politicians can't act unilaterally or nefariously without being unelected at the ballot box.

I've never seen a politician openly run on a "I will exacerbate the housing shortage by any means necessary" NIMBY platform. They may have promised key donors they would, but how often do the voters know that?

No, but they still run on what their constituents want, and act on those wants via how they execute their office. Key donors are probably a lot more for growth than key constituents.

Yes, the problem is the classic landowning class vs. serfs. It's just that the USA had a lot of land compared to population for a long time, but one day it will explode in redistribution when too few people own too much land.

Considering how much wood they go through and how housing structure always depreciate rather than appreciate (even if the land appreciates, the market for a second hand house is small), Japan.

Japan is a weird exception. The house I live in the in the UK was built in 1896 and isn't out of the ordinary, if the building is maintained properly you are fine.

Knob and tube wiring... riiiiight.

I guess you consider taking the walls apart and completely rewiring the entire builting to be just "maintenance"? Our permitting department would disagree.

https://en.m.wikipedia.org/wiki/Knob-and-tube_wiring

Why are new buildings preferred? In the US people like older houses, even when they are poorly built.

https://robbreport.com/shelter/home-design/japanese-homes-ar...

We like newer buildings as same as newer cars. It's comfortable overall. Why you like older buildings ?

Many here like to keep old cars too, you regularly see cars from the 1950s still driving. Older houses like older cars have been tested by survivor bias. Older things stand out a bit too, so it is a way to be individualistic. A way to connect to the past too. Even if it wasn't your ancestors that built a house, learning about the people that did, and living where they lived and died is an interesting experience. In many cases the workmanship is something that could not be repeated given modern labor rates. So lots of little reasons. Also our modern homes don't vary as much as yours, they all look roughly similar. So an old house might be selected just to avoid the current popular design.

Probably a bit of "they don't make them like they used to."

There is a bit of that at least for me, but it is a mixed bag. Yes, pier and beam can handle shifting soil better than the modern foundations we see around my area, but most everything from an insulation standpoint is extremely inferior to modern construction. Also, airflow in houses retrofitted for central air conditioning is suboptimal. The woodworking made from hand tools is something we will never see again in middle class homes though. On the whole, I'd give the nod to a modern home both for maintainability and efficiency, with the notable exception of foundations. If I lived somewhere basements were normal in new builds, even that might swing towards a new build. But old houses are still just more interesting, the way a 60s roadster is more interesting than a modern one, despite being worse in every way functionally.

Thanks for sharing your thought. There's old car fans but not much old house fans. For Japan, the new earthquake resistance standards was introduced in 1981 so not all prior houses are guaranteed to safe. Old houses could be interesting but almost all 1981 house isn't interesting but just obsoleted. Insulation is also a huge factor.

One datapoint: In Germany, Altbau (old construction) apartments are quite sought after especially in cities. Whether that's because of their location (older apartments tending to be in historical areas) or their construction quality or just fashion, I don't know.

Houses from 1981 aren't very interesting here either. Right now people seem to like 1960s houses or 1920s and older.

Everywhere else with more reasonable tax and zoning laws. I'm amazed that Californians vote this nonsense onto themselves and then are astonished that nobody else does.

> I'm amazed that Californians vote this nonsense onto themselves and then are astonished that nobody else does.

Almost every other rapidly growing state is complaining about the same problems, so it isn't "Californians", and I don't think they are astonished by the impact. Those that want to live in a zone-light place like Houston Texas have already moved.

It's pretty much exclusively states that have implemented either strong zoning laws or strong environmental review processes that have this problem. Can you name a high growth state which doesn't have one of these two problems that is experiencing insane housing prices?

It's mostly the highly urbanized states. You can't just keep building in places like SF or Seattle without also building major infrastructure to support the highly-concentrated population and commerce centers (compared to other less urban states).

The issue in SF and Seattle is absolutely not building major infrastructure, lol. Many areas of SF are 3-4 floors tops. New buildings are height limited by zoning except in the financial district. If anything, Texas has way crappier infrastructure than SF/Seattle.

Zoning and empowering NIMBYs with the ability to block construction is the big differentiator.

It isn’t just the houses, the schools, the sewers, the highways, or the public transit also need upgrades. Even then, a city like Seattle has been building a lot more than SF in the past decade, yet still keeps approaching it in property famous (and yes, we mean land value, not just the structures on them). I live in Ballard. And tons of low density SFHs are being torn down for three story luxury townhomes, and then there are the 5-6 story apartment blocks being built. And this isn’t uncommon in the region. I guess as we approach NYC density, we will approach its property prices as well?

These are very congested cities that need multiple new mass transit lines and freeways (at least) to accommodate the influx of new residents that would come with a massive housing boom. I'm not defending zoning laws or NYMBYism. If anything, many of the same laws restricting new housing are also restricting the ability to build new infrastructure quickly and affordably.

Which is what, every rich urban state? It’s like comparing Nebraska with Colorado, one has more zoning than the other, and is also the more popular state to move to for some reason

"What reasonable place do people live where the price of lumber has anything to do with housing?

California property market is a full on casino."

It sounds like you answered your own question - not CA. Pretty much any lower density area is better. Small cities and rural areas tend to be cheaper, where materials do constitute the largest cost (or second to labor) of building.

Most places that aren't California? There are buildable plots of land everywhere outside of dense urban cores. The cost to build on these lots puts downward pressure on the cost of an existing home.

I mean, your point is that because LA and SF are hemmed in by geography (mountains, water, etc...), that they are more limited? But you see the same geographical effects in places like Seattle and Denver.

And those two Californian metros still have plenty of sprawl, people realized they could keep building out a long time ago. Housing in Lancaster CA (about 1 hour from LA without traffic) is much cheaper than LA, though still expensive.

Price of lumber has a lot to do with the price of new construction - and new construction prices are more similar cross-country than house prices are.

Once you factor out land value the cost to build per sq ft is similar.

Dropping lumber prices will siphon some of the demand into new builds. That being said, NIMBYs are still a cancer and the main blight in California.

You’re implying that houses in highly desirable areas are purely speculative “assets” akin to beanie babies . That is absolutely absurd.

Presumably the large middle of the USA and Canada.

It has everything to do with "fundamentals". They're not making more land, and in California, they're also not making any more housing.

Actual article title: "Lumber rally cools with transport snarls easing, buyers balking"

It hasn’t started cooling yet here in AZ, still seeing properties going for over list and prices are still climbing.

That said I see interest rates are now approaching 5% so have to imagine it might pull back some soon, really depends on the supply though.

It’s starting to cool in Vegas where I’m seeing multiple properties that OpenDoor attempted to flip sit on the market for weeks on end with multiple rounds of price cuts.

I’m not sure what open door is but I’ve been eyeing that market and it seems listings are either pending in 24-48 hours or they stay listed for a good while. Weird time to be home shopping.

Rates rising limit supply initially. Why sell your house if you just refinanced and locked in a much lower rate than you'd get on a new place.

Doesn't seem to be the case where I am (NZ). The official cash rate here has gone from 0.25 to 1.00 since August last year. In my city, there are now almost 2-3x times as many residential homes on the market as there were this time last year (when the market was booming). Stock is building up as time-to-sell goes through the roof. Things are getting very interesting.

Come to the northeast where choice properties are easily going 40% over list. Homes that sold for 800k in 2017 are going for 1.9M right now.

I read numbers like that and I think, "Sure glad I'm not the one who'll be holding the bag on that." But then...I might be. I'm not sure. Someone's going to be making good on the money that disappears when the greater fool mails his keys back to the bank. Will it be the standard idiots Fannie, Freddy, Deutsche Bank, and whoever pulls the short straw at the NY Fed annual picnic?

You probably are the one holding the bag. Prices are exploding because mortgage rates are being held below the rate of inflation. In this scenario, it makes sense to borrow as much money as you possibly can and buy hard assets with it, because your mortgage is essentially a transfer of wealth from the bank to you. Normally banks would be the bagholders in this scenario, but because of securitization, they just package off the mortgage and sell it on the MBS market. The biggest buyer of MBS's lately has been the Fed, which they do with money newly injected into the market. The effect of this money creation is the inflation we've seen over the last 2 years, so effectively this has been a transfer of wealth from savers and anyone whose income is denominated in cash, to buyers and to some extent sellers of homes.

I’m not sure either and neither are real estate agents. My contacts there are thought we’d see a flat at best market this year. But here we are - biggest jump yet. Spoke with a notary a few days ago that said they’ve never been busier. People locking in low rates.

But to me it seems like it’s going to cool fast. Rates going up. Fine if you’re long term.

I went to view a house a few weeks ago listed at 1.25 and that seemed high. I asked my real stir if 1.6 gets it done and she said I doubt it - need 1.75. Heard (not published yet) a rumor it went for 1.835.

Anecdotal but something seems broke. Saying that I just took out a line of credit for a few hundred thousand.

> "Sure glad I'm not the one who'll be holding the bag on that." But then...I might be. I'm not sure.

That's a simple one to answer. Are you a taxpayer?

Rising interest rates will cool the market but that doesn't mean that the demand has vanished. People will simply remain longer in misery in their existing housing that doesn't suit their needs.

Some relative "misery"; if they can afford to own a house, they're probably not that miserable.

Being able to get a loan to buy a home in the past doesn't imply being able to afford to own it now, especially if the loan was an ARM, had an interest-only or negative amortization period, etc. (but even with a conventional fixed mortgage, financial situation can change for the worse after buying.)

This or not, having a house is pretty far away from "misery" in my book. At least you've got a roof over your head and no landlord to price you out of your home into the streets.

Is it just me or does this article does not mention the housing market at all? The second part of the title should be deleted.

Yes, the submitted title ("Lumber prices fall 30%; housing market cools") broke the site guidelines, which ask "Please use the original title, unless it is misleading or linkbait; don't editorialize."

The article isn't about the housing market. The editorialized title triggered an off-topic discussion. We've reverted to the article title now.

Accounts that keep doing that eventually lose submission privileges on HN, so please don't do that!

Yah I'm confused on all the comments on the housing market. Did they read the article? The first three letters of house and housing, "hou", are not even on the website. We can debate on if the market is cooling.... but not based on this article. It mentions the DIY market, but that's still a leap to the overall housing market.

Not yet. Single Family Homes still going under contract the first weekend they list in desirable Charlotte NC suburbs.

This is in addition to atleast 3 new construction developments within a couple miles of each other where I live, all priced 20% higher than existing homes.

Looks like there's still demand out there.

Hey, neighbor!

The desirable areas tend to take longer to slow down. Less desirable areas (e.g. when NoDa was just starting to gentrify) have enough uncertainty that small spooks can cause quick changes since you could get a good deal or you could end up in a crappy neighborhood.

The housing market won't cool until the political class is barred from owning multiple homes and speculating.

Why would they act not in their interest?

Wouldn't taxing uninhabited homes be more realistic and effective than banning people from owning things? If the tax hurts enough, then the prices drop so that uninhabited homes get people living in them.

Property tax is already kind of this: you have to pay tax on property owned regardless of whether you are putting it to productive use or not, so it pushes people to using property productively. China mostly lacks a property tax, so that is why property speculation over there is so bad (much worse than here in the USA). In China, it isn't worth renting your $1 million apartment for $1000/month, and doing so would only hurt resale value anyways (renovations are always redone by new owners, so renovating to support a tenant is a straight sunk cost).

Most investors don't let homes sit empty; they let renters subsidize their speculation. Investment properties often have renters in them.

If the vacancy rates are too low for a vacancy tax to have an impact, then the other dial to turn would be creating more supply via higher density zoning, yes?

This assume builders will create the inventory with pressed margins.

True, but zoning has to come before anything else, so might as well tackle that as a first step towards increasing supply.

I think this is the best solution. Should be for commercial property too. I've seen buildings be unoccupied for over 15 years, how can that be in anyone's best interest?

>how can that be in anyone's best interest?

Often because lowering the rent lowers the value of the property which was based on its expected rental return. 15 years is quite extreme but it would often be preferable to go a few years without commercial tenants than to lower the rent and wipe out massive amounts of value.

I’ve heard this before and it’s such a perverse set of incentives.

Agreed. Expected rental return is a perfectly valid way to assess the value of a building but I feel that having vacancies should detract from the value in a way you'd rather keep it occupied all the time.

It should. But it sounds like there's an artificial valuation being propped up by not considering long stretches of vacancies. Of course, this only benefits people who own the properties...

Owners are probably using that property to get a tax cut

If it's commercial property you're getting a tax cut whether it's rented out or not.

But what if you own vacation houses? We shouldn't force people to rent out stuff they own.

I think most people would be fine with people owning one vacation home or cabin but would find more than that excessive. An alternative would be looking at local housing demand and taxing according to local need of housing, but that would be pretty messy and prone to loopholes and corruption.

There are areas of the UK where local property taxes and other financial incentives (some form of zoning I think) to reduce the number of holiday homes. The problem is that local people are being priced out of the areas by holiday homes. And in rural areas that impacts the viability of schools (lower pupil numbers so higher costs per pupil), public transport, even local grocery store viability (less trade out of season, no workers).

why shouldn't we?

a vacation home is wasted space for 90% of the year unless it's also rented out. Why wouldn't we want to use space more efficiently than that?

That has never stopped the housing market from cooling many times before. People keep tending to have short memories.

If demand is high, could we not increase supply? https://www.worksinprogress.co/issue/the-housing-theory-of-e....

That's what we did up until the '70s, when we empowered NIMBYs to block new housing units, with the results all around us.

This article only talks about futures markets for lumbar (in particular the July futures)... so what this means is that in a few months lumber might be cheaper than expected.

No direct connection is made as indicated in the title. There has been news that pre-closing processes saw a decline, but those indicators are future predictors of sales and not a direct drop in sales.

TLDR: this article is not talking about what's happening today in the housing market, just about future projections.

homes are still popping up at every corner here in GA... the housing prices didn't drop as fast as I was anticipating... sold my home in 2021

People like to talk about housing prices as if it's just a simple supply issue which can be fixed by building more houses, but it doesn't seem that simple to me.

Sure, there might be a lack of supply... for speculative investment. But in terms of there just being enough houses for the population to /live/ in, aren't we already there?

There's no cap on "need" for housing investment, if it continues to be profitable, people will keep investing in more property - you'll never reach a point where you've built "enough" for prices to get under control.

Nobdy wants to lose money leaving their real estate investment empty. Vacancy rates are low.

If we had "enough" homes it wouldn't be profitable to speculate. Most peope agree we're in a housing crisis. We need to be focusing on making it legal to build more housing rather than worrying about if people are making money owning homes.

I'm not saying we shouldn't be doing those things (making it easier to build new houses). I'm just saying it seems naive to think that that /only/ doing that will make houses affordable.

> Nobody wants to lose money leaving their real estate investment empty. Vacancy rates are low.

People do leave properties empty - it's easier to do in a rising market when it will still make you money via capital gains (and leveraging equity to purchase further properties).

It's worth keeping in mind that industry reported vacancy rates are typically the proportion of properties that are on an agent's books and are currently vacant. Many properties are not included (land-banked, holiday homes, AirBnB, those currently being renovated, up for sale, etc).

I live in a house that is currently valued at NZD1.7M. This same house was purchased for NZD0.56M 12 years ago. That gain totally dwarfs the amount of rent the owners could have collected in that time.

Consider NZ.

According to Statistics New Zealand in 1991 there were 1,307,000 private dwellings and 1,252,600 households. A difference of 4.16%.

In 2017 there were 1,855,500 private dwellings and 1,734,800 households. A difference of 6.5%.

During this time household sizes decreased and house prices increased far in excess of inflation. In 1991 the average house was NZD173,000 (in 2016 dollars). In 2016 it was NZD495,000. Today it is over NZD1,000,000 (or about NZD900,000 in 2016 dollars).

Consider Australia.

Prosper Australia's Speculative Vacancies Report [0] (looking at water usage to determine under-utilised properties) suggests areas with high vacancy rates in Melbourne correlate with areas where capital gains (i.e. percentage price increases) are greatest. Desirable areas have higher vacancy rates, even approaching 20% by their reckoning. This is the opposite of what you would intuitively expect in a naive supply and demand equation.

Consider the UK.

A study in the UK [1] using council data found that high property prices correlate strongly with what the study refers to as 'low use properties' (LUPs).

A speculative boom creates extra demand. As Ireland discovered during the GFC, when that investment demand dries up, the empty homes (and over-supply) are revealed. This will happen again and it will be when people can no longer take on more debt (most likely due to rising interest rates).

[0] https://www.prosper.org.au/wp-content/uploads/2019/04/Specul... [1] https://theodi.org/event/friday-lunchtime-lecture-empty-home...

A big part of the problem is distribution, a home in Akron isn’t as valuable to society as a home in SF/NYC. People are locked out of opportunity (which doesn’t just enrich the individual but broader society though taxes and more efficient labor) through lack of housing.

I used to live in Akron. The tire, rubber and chemical industries are big and have a lot of high paying jobs. This is not even taking Cleveland into account which is a massive medical hub. Looking at just the city is misleading. You need to look at the desirable suburbs between Akron and Cleveland (ex. Hudson). They're massive, expensive homes there.

I understand what you're saying but Akron probably isn't the most ideal example for your comparison.

Akron is not devoid of contributions to industry (the university has cut some departments lately)

-signed, child of two UA alums who went to Caltech. I know another UA alum from my HS (https://www.linkedin.com/in/stanwang/) who has done quite well building venture backed companies.

I don’t doubt that many have achieved great things in Akron, but was rather arguing that the relative level of opportunity is lower in Akron (median income 23K) than SF (54k) or NYC (32K). The typical person is more economically productive in cities like NYC or SF.

> a home in Akon isn’t as valuable to society as a home in SF/NYC.

What an odd thing to say.

If Akron had a hot economy with high paying jobs, its housing would surely be more valuable.

It makes perfect sense if you're concerned about the economy

https://www.google.com/amp/s/www.nytimes.com/2017/09/06/opin...

No, there are simply not enough houses relative to demand. Just having enough space to house everyone not enough.

That’s not true. There aren’t houses in places people wish they could live on their salary/savings. Plenty of affordable houses in many places if people were willing to live there.

If you keep building at some point it becomes unprofitable to invest in housing.

And what is more likely is we see housing prices drop, a massive pullback and an oversupply.

Except that most builders are investors in the SFR space. In the end, we’re expanding rental availability, not first-time home owners.

Why not first time homeowners? It all depends on returns.

Because renting is unlimited income and selling is a one time income?

Look up the "time value of money", NPV and return on investment.

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