Dramatic Upsurge Of Lumber Prices Will Impact Builders And Buyers For Months Ahead

Lumber prices may be coming back down to earth, but it will be awhile until builders and buyers see a market correction (COURTESY OF YARON YEHODA).

As lumber prices hit dramatic highs last Spring, homebuilders and developers held their breath, with many opting to delay construction on new projects until prices abated. The roller-coaster prices hit both large national entry-level builders and custom luxury home developers building on speculation. Lumber prices have since come back to earth—according to Fortune, lumber prices have fallen 68% after hitting a historic high in May of $1,515 per thousand board feet of lumber to a recent price of $485 per thousand board feet—but builders aren’t expecting a drastic market correction.

front entrance to an under-construction luxury home on curwood place in beverly hills

Since hitting a historic high in May of $1,515 per thousand board feet of lumber, lumber prices have fallen to $485 per thousand board feet (COURTESY OF YARON YEHODA).

Yaron Yehoda has built luxury homes around Los Angeles since 2009, including projects in high-dollar ZIP Codes in Pacific Palisades, Encino, Studio City, Brentwood, Beverly Hills and West Hollywood. “Yes, prices have fallen. But you have to look at the huge price they’ve come down from,” reasons Yehoda, whose building style is “traditional with local elements.” The price-points for those homes have ranged from $4 million to $10 million.

luxury home developer yaron yehoda inspecting a pool area in beverly hills

High-end developer Yaron Yehoda, right, inspects his new project at 9814 Curwood Place in Beverly Hills. Yehoda’s homes have previously set price records in some of Los Angeles’ most exclusive neighborhoods (COURTESY OF YARON YEHODA).

Looking at profit margins, Yehoda explains why some spec builders are in a holding pattern. “Those who build homes for $4 million and under are not building right now. Those high lumber prices impact the margins on that priced home. In the $14 million-$20 million range, it won’t have as much of an impact on profits.” According to Yehoda, those extra budgeted dollars spent for lumber will turn a $4-million spec home into a $4.5-million property. “Areas like Beverlywood, Beverly Grove, and around Melrose don’t command that price,” he explains.

modern open floor plan in a 10,000-square-foot beverly hills contemporary home

Yehoda’s project at 9814 Curwood Place in Beverly Hills is a 10,000-square-foot contemporary that is expected to list for sale next month for about $14 million (COURTESY OF YARON YEHODA).

Richard Hirsch, founder of Los Angeles-based fine wood flooring manufacturer Richard Marshall Fine Flooring, knows the wood business well. For over 25 years, Hirsch has been creating and crafting luxury solid wood flooring for homes, estates, five-star hotels and resorts around the country.

modern black kitchen with light woodwork in an under construction beverly hills home

Yehoda says that in some markets, lumber prices “will turn a $4-million spec home into a $4.5-million property,” as builders attempt to recoup costs (COURTESY OF YARON YEHODA).

“We did more business first half of this year than all of last year. We are getting business that we won’t work on for a year or two, Hirsch said. “We have contingencies with clients if prices go up; we are allowed to pass that on. It’s all about supply and demand since the cost of the trees hasn’t gone up,” he adds.

modern staircase with warm woodwork in a luxury bevelry hills home on curwood place

Richard Hirsch, founder of Richard Marshall Fine Flooring, says he has “contingencies with clients if prices go up.” (COURTESY OF YARON YEHODA).

Chief Economist at realtor.com Danielle Hale lends perspective on the situation. “I know the major builders have consistently been trying to manage their pipelines, making sure they pencil out a year from now when homes are finished based on the high lumber prices they were paying in the Spring. I’m sure that funnels down to the luxury spec builder,” Hale said.

wood paneled two-story entry in an under construction luxury home in beverly hills

The six-bedroom, seven-bathroom home features a two-story entry, a gym, a home theater, an office and lots of wood paneling (COURTESY OF YARON YEHODA).

“It’s very tricky for the builder in that $4-million range around Los Angeles because when a house must hit that $4.5-million price, buyers start to compare it to an area that’s a slightly better,” Yehoda observes.

luxury beverly hills home under construction with swimming pool and cabana

The two-story home sits on a roughly 34,000-square-foot lot with a swimming pool, outdoor cabana and city views (COURTESY OF YARON YEHODA).

Once again, lumber prices may rise and fall, yet spec building and real estate fundamentals remain. “It’s a location-driven market,” said Yehoda who has a new project coming to market in the next month in Beverly Hills. Marc Noah of Beverly Hills-based brokerage Hilton & Hyland is the exclusive listing agent for the property.

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I have covered the business of real estate (both residential and commercial) for over 25 years, including more than a dozen years working in the Forbes Los Angeles bureau reporting and writing about as I call it, Adventures in Real Estate. From the first tear-downs turning into mega-mansions in Beverly Hills to luxury condos as investments in Las Vegas, I follow the ups and downs of real estate markets around the country just for the fun of it.

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