Lumber Shortage Leads To Rising Lumber Prices
Andrew Dehan5-Minute Read
April 05, 2021
If you've tried to do some home projects recently or have been paying attention to the news, you'll know lumber prices are rising. This rise in pricing is having a major impact on home construction and renovation.
Read on to learn why lumber prices are rising and what this means for you.
Why Is Lumber So Expensive?
Several factors have come into play to cause the rising price of lumber. Last year's shutdowns due to the coronavirus pandemic caused a delay in production of building materials, which meant less lumber on the market.
Because of the closures more people had free time on their hands. This led to more hobbyist projects and home improvement projects, meaning more people building decks, sheds and practicing their woodworking skills.
On top of this, due to people spending more time at home, more people are looking for bigger homes. Because of the lockdown last spring, construction slowed to a halt. When construction started up again, home buying season was in full tilt. This lag in construction combined with increased demand has had contractors playing catch-up. With growing new-home construction comes more demand for materials.
Put these three together and you have a recipe for short supply and strong demand. Even with lumber production hitting a 13-year-high, supply is too low to meet demand. You don't need a degree in supply chain dynamics to know that this means prices are going up.
And they’ve skyrocketed.
Lumber Price Chart
According to a recent report by the National Association of Home Builders (NAHB), lumber prices have risen to an all-time high of more than 180% since April 2020. Here’s a chart that compares prices from last year to this year.
These include the price of average pine two-by-fours for contractors (who buy a lot of lumber), for DIYers (from a major home improvement store) and the stock market’s price per thousand board feet (mBf).
This is how it breaks down:
Prices fluctuate on these due to market demands. Also, due to the lumber shortage, standard construction pine or pressure-treated pine is often not available from home improvement stores.
Lumber prices aren’t the only thing on the rise.
Are Other Material Prices Rising?
Yes, they are. Any material that was affected by the shutdown, where manufacturing of that material was halted, has been in short supply.
We spoke with Robert Rekuta at Rekuta Construction Services in Ortonville, Michigan, to get his take on what he’s seeing as a contractor.
“One stick of ½-inch type L copper has more than doubled. The current cost is $19, up from $9.50 and plywood cost is up 80 – 110%,” he says. He mentions that copper costs in particular have risen, whether for plumbing or electrical. “In January 2021, a 250-foot roll of 12-2 electrical wire cost approximately $65. Today it costs $137.”
He adds that “increases seem to be everywhere, from solder to fasteners to paint.”
What Rising Construction Prices Mean For The Market
If you’re in the market to buy a home or renovate your existing one, these prices may give you pause. On one hand, you’re ready to make an investment and want to move on it. On the other hand, you don’t want to pay more than what something’s worth due to market fluctuations.
Here’s how these rising construction prices are being reflected in the market.
Rising Price Of New Homes
With the rising cost of lumber to build a house, new home prices are rising sharply.
The National Association of Home Builders (NAHB) says that, as a direct result of the cost of lumber, new single-family home prices have increased by more than $24,000 on average since April 17, 2020.
This sharp increase in price is hard for home buyers to handle, especially first-time buyers who don’t have equity in their current house to draw from.
Pricing People Out Of Home Renovation
The price increase of materials is also pricing people out of renovating their homes. Rekuta says, “Over the last 6 weeks, three projects have not moved forward due to overall material cost.” Homeowners are stepping away because, “due to the rising prices in materials, the overall cost exceeds the added value of the project,” he says.
This is causing many people to second-guess whether they should renovate.
When asked if there are any home construction projects unaffected by the price rise, Rekuta said, “Flooring projects have able to proceed with little to no increase in material, specifically costs in LVT (luxury vinyl tile) seem to be remaining the same, for now.”
He adds, “While the cost of the LVT has remained the same, there is no job or project where that is the only material needed, and the other materials needed for these projects have gone up in price as well.”
Rekuta has also added that the shortage of materials has led to rationing. Companies are limiting the amount of lumber, drywall and even hammers that people can buy because of low supply.
When Will Lumber Prices Go Down?
The price of commodities, like lumber, can fluctuate due to market demands. This makes it difficult to predict when prices will go down.
The NAHB has been advocating for Congress and the Biden administration to push lumber producers to ramp up production. They’re also pushing the government to end tariffs on Canadian lumber shipments to the U.S. These tariffs, imposed by President Trump in 2017, tax lumber from Canada up to 24%. This put Canadian and American trade relations in limbo.
While there is bipartisan support for increasing sawmill production and potentially ending the tariff, no action has been taken. This leaves contractors, homeowners and home buyers in a tough spot.
The growing availability of the COVID-19 vaccine could help increase production, getting more people back to work and hopefully increasing the lumber supply.
“I do not see any signs of relief in pricing currently, but the current costs are simply not sustainable,” Rekuta remarks.
The Bottom Line
While rising lumber costs may only be directly benefitting those who made the right bet on lumber futures, there’s still good news in the housing market. Current low interest rates mean that buying at a lower rate can be a great financial decision even with rising home prices.
With housing in high demand, there’s plenty of work for home builders. Unfortunately, their profit margins are slim due to the high cost. There’s only so much price hikes the market will take.
For first-time home buyers and contractors specializing in renovation, like Rekuta, it’s clear this is far from an ideal market. The pendulum swing that started with coronavirus stalling construction and materials production has swung the other way. Eventually production will catch up to demand and prices will stabilize. When that will happen, only time will tell.
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