Higher Lumber Prices Push Up Building Materials Costs for New Homes in November

A closer look at the Bureau of Labor Statistics’ (BLS) November Producer Price Index (PPI) released on Thursday, with additional analysis provided by the National Association of Home Builders (NAHB), reveals that prices for inputs to new residential construction—excluding capital investment, labor, and imports—were unchanged in November. Year-over-year, this index was up 0.7% after rising 0.3% in October.

The inputs to the new residential construction price index can be broken into two components­—goods and services. The goods component increased 1.2% year-over-year, while the services component saw a decrease of 0.3%. In comparison, the total final demand index rose 3.0% year-over-year, with final demand for goods up 1.1% and final demand for services increasing 3.9%.

Among lumber and wood products, the commodities with the highest importance to new residential construction include general millwork, prefabricated structural members, softwood veneer/plywood, softwood lumber (not edge worked), and hardwood veneer/plywood. Notably, the input commodity with the highest year-over-year percent change across all input goods in November was softwood lumber (not edge worked), which increased by 13.7% compared to November 2023. This is of particular note because none of the other top wood commodities had an annual change above 3% in November.

In terms of services, the prices of inputs to residential construction remained unchanged in November. The price index for service inputs can be divided into three components: trade services; transportation and warehousing services; and services excluding trade, transportation, and warehousing.

The largest component, trade services, makes up about 60% of the total and saw a 1.2% decrease in November compared to the previous year, following a 1.5% decline in October. The second-largest component—services excluding trade, transportation, and warehousing—accounts for approximately 29%, while transportation and warehousing services represent about 11% of the total.