Lumber, lumber, lumber… lumber.
We find ourselves discussing lumber now more than ever before with prospective clients and industry partners. So what’s going on today?
Why are Lumber Prices High?
There are a variety of factors coming together all at once to affect lumber prices. Over the past few years, demand has increased dramatically while supply has tightened. For starters, growth of gross domestic product in all major economic regions of the world is fueling something of a world-wide construction boom. In the U.S. alone, single family home construction increased 7% between January 2017 and January 2018.
With the pandemic, the amount of lumber being used in construction continues to rise. Housing starts are up, showing an increase of about 17% between May and July of 2021. More DIYers home improvement projects like decks and sunrooms popping up, and restaurants across the U.S. are using more and more lumber to build outdoor seating and dining areas.
Meanwhile, the lumber industry has faced struggles of its own with shutdowns and a decreased demand for timber in other areas, like paper manufacturing and home goods, where downturns have been steep. All of this is combined with the fact that several years ago, the U.S. raised import duties on Canadian lumber, which has been causing a supply shortage in the U.S. as Canada exports less lumber southward.
Pandemic aside, there are also the rising costs of everything going into lumber production—labor, transportation, containers and so on, all costing more across the board, which drives up the cost of lumber regardless of supply or demand. The cost of a flatbed truck to haul lumber, for instance, went up 24% between January 2017 and January 2018.
Where are Lumber Prices Right Now?
In some cases, lumber prices have doubled and tripled over the past year. OSB board prices, for example, were three times higher in September 2020 compared to September 2019. Other prices have gone way up, too. Western SPF 2x4s, for example, have gone up 158% over the past year, studs have risen 164%, and southern pine has gone up 147%.
Will Lumber Prices Stay High?
Back in 2018, experts were saying that with the current chaos in the lumber markets, prices were expected to be high through 2020. After that, costs were expected to come down. That was before COVID-19 hit…
Now, in order for prices to come down, several things need to happen:
- In the U.S., lumber production will need to increase to cover the lost supply from Canada.
- Canadian import duties will need to come down so that Canada can export more lumber to the United States.
- COVID-19 related shutdowns within the lumber industry need to come to an end, and timber producers must increase production.
- New construction permits pulls need to maintain levels or taper off, but we continue to set monthly records.
That being said, lumber mills are no innocent victims here if you catch our drift. Sure, production and capacity are tight, but raw supply costs appear to be unaffected….
How Does This Affect Housing Costs?
The cost of single-family homes has risen by $36,000 on average — new or existing. This starts to affect appraisals as new build prices soar, and inventory plummets. The result? buyers paying thousands above asking prices and waiving all sorts of things like appraisal clauses and inspections…part of the reason that housing supply remains low is that mortgage rates are at all time lows. Through Q4 of 2021, average rates for 30-year fixed mortgages dipped beneath 3%, which is the first time rates have gone so low since Freddie Mac started to track this data in the 1970s.
Lumber prices are up, astronomically so compared to prices over the last two decades, but they are expected to come down as the pandemic eases. Meanwhile, a high demand for new construction, particularly single-family homes, means that builders in the United States should quite easily be able to weather the volatile lumber market for the foreseeable future.