Lumber prices jumped in July

Homebuilding supply costs in July climbed upward for the first time in four months, but the pace of growth year to date is the slowest since 2019, the National Association of Home Builders said.

The uptick of 0.2%, which was not seasonally adjusted, comes after the cost of residential construction goods, excluding energy, flatlined in June and decreased in the prior two months, according to the trade group's analysis of the Bureau of Labor Statistics' Producer Price Index. Year to date, the price of building materials has inched up 0.2%, compared to 0.7% in 2022 and 1.5% in 2021. The latest January-to-July trend reflects the slowest pace of growth since pre-pandemic 2019.

With volatile energy prices factored in, the cost of goods inputs to residential building decreased 2.2% from a year ago, driven by a sharp decline in the price of fuel.

While costs headed downward or only saw a minimal uptick for other building materials, softwood lumber prices surged by a seasonally adjusted 8.6% between June and July, the largest jump this year. On an unadjusted basis, the number came in at 4.4%. The rise in lumber prices has noticeably differed from the slower rate of growth for other building products this year, but costs are still below where they stood for much of the first half of 2022. 

Ready-mix concrete prices also edged up monthly by 0.1% after falling by the same rate in June. Monthly price increases of ready-mix concrete have slowed in 2023 compared to a year ago, up 3.3% since the beginning of the year, roughly half the pace it grew at the same point in July 2022.

Prices of gypsum building materials, similarly, showed a marked decline in the pace of price growth this year and fell another 0.1% month-over-month drop in July. Costs declined for the fourth consecutive month

After an early-year surge, the price of steel-mill products used for homebuilding saw a summer slowdown continue. Costs fell an unadjusted 7.6% in July, compared to a 0.6% drop in June. The two-month retreat helped temper a 12.4% upswing in steel-mill goods prices between January and May this year. 

The summer moderation in construction-material costs may provide another dose of favorable news for the building industry this year, as consumer interest in newly built properties have led to stronger bottom lines for several companies. Current tailwinds have helped lead homebuilder sentiment to its highest level in over a year last month, according to a monthly survey conducted by NAHB and Wells Fargo. 

The latest residential-construction supply cost moderation also appear to correlate with movements in consumer prices. Last week, the Bureau of Labor Statistics reported inflation inching upward 0.2% in July on a monthly basis and up year over year by 3.2%, a notch below what many economists predicted. The slowing pace of inflation is leading to expectations of a pause in interest rate hikes when Federal Reserve officials convene in September. Some economists also predict the central bank will start cutting rates in 2024 thanks to current inflation trends.