Thursday, April 22, 2021

Where Housing Prices Are Going Through the Roof



Our housing boom story starts with the mountain pine beetle (featured above). Maybe as big as a grain of rice, millions are nibbling away on so many pine trees that British Columbia recently exported close to one third less lumber to the U.S. Add the beetles to a  miscalculation and a pandemic and you get soaring lumber prices.

Up by 260 percent since last April, lumber prices have more than doubled. Their climb started because no one expected a boom. The lumber mills that cut back by 30 percent at the start of the pandemic soon found they did not have enough for all of the DIYers, the people doing entire renovations, and new home buyers looking for something bigger. At the same time, labor shortages, trucking delays, and a beetle infestation compounded the problem. Throw in the low interest rates that make mortgages more attractive and you have too much demand for too little lumber.

You can see that lumber prices are reaching new heights:

Correspondingly, home prices also are soaring.

The Housing Boom

The following sequence of NY Fed maps, lets us compare monthly home prices to where they were the previous year. I start at the end of the last housing price plunge. Then, my maps get increasingly blue:

By January 2012, average prices were barely dipping:

Then, when 2017 began, the ascent had been sustained through several years of monthly increases:

Now, prices are up a whopping 10 percent:

Our Bottom Line: Supply and Demand

As economists, we could say the following graph displays a series of new equilibrium prices:

With supply decreasing and demand increasing, we get a higher median home price:

On the demand side we have more millennial buyers, low mortgage rates, and a pandemic induced search for more space. Meanwhile the supply of existing homes is shrinking. Essentially though, for lumber and homes, it is classic supply and demand.

My sources and more: My look at housing started with The Hustle’s story about lumber.  Then I detoured to the mountain pine beetle at Bloomberg and Quartz but finally wound up with the NY Fed. Then, for analysis, I always like WSJ.

Ideal for the classroom, reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.