Why Is Lumber So Expensive In 2022?
Carey Chesney5-Minute Read
April 08, 2022
The last few years have been … well … interesting. As Americans have adapted their lifestyles during a global pandemic, new questions seem to arise daily. How much toilet paper do I need in reserve? Why are used cars so pricey? Speaking of cars, can I even afford gas?
Issues with supply chains, employment and other economic factors have made many of the goods and services we have come to rely on skyrocket in price. If you’re thinking about building a home or adding on to your current house, you may be wondering, “Why is lumber so expensive?”
The answer is complicated, but this article will try to simplify it for you. Read on to learn why lumber is so expensive and what to expect from lumber prices in the future.
Why Is The Price Of Lumber So High?
Lumber prices are set by the market forces of supply and demand. With factors like tariffs and extreme weather reducing supplies, the ongoing housing shortage in the U.S. keeps demand for lumber and other wood products high.
To put it simply, there just aren’t enough houses for all the people that want to buy one. That means builders are working overtime to increase house inventory. To compound the issue, taxes and natural disasters, among other things, are making lumber supplies more and more scarce. Demand is high and supply is low.
Regardless of the commodity or service, low supply and high demand is always an economic blueprint for a price increase. In addition, lumber has historically been a commodity that experiences high price volatility.
What Is Price Volatility?
Lumber prices have been volatile historically, but they’ve been particularly changeable since the beginning of the COVID-19 pandemic. Volatility creates uncertainty and makes those needing to buy lumber act when prices drop, which inevitably drives prices back up and creates an inflationary price spiral.
Here’s a look at lumber prices over the last 5 years from Nasdaq’s website to give you an idea of the price volatility associated with lumber.
Why There Is A Lumber Shortage: Supply Side Factors
Why is there a lumber shortage? To answer that, it helps to parse out supply issues and demand issues. Let’s start with supply. As previously mentioned, supply side issues fuel shortages that can help raise prices. There are a number of those issues that have affected lumber prices over the last few years. Here’s an in-depth look at each of them.
Tariffs On Canadian Lumber
Tariffs were levied against Canadian lumber by the U.S Commerce Department in 2021 and have been slow to come off. This was done at the request of the U.S. Lumber Coalition, which claimed that Canada subsidized lumber coming to the U.S. so much that manufacturers in America were having trouble competing.
These tariffs reduced the amount of Canadian lumber produced for the American market by making it more expensive compared to U.S. lumber, and thus reduced demand for Canadian lumber. While tariffs are in place, Canadian lumber producers are unlikely to ramp up production, resulting in less supply.
In the COVID-19 pandemic’s earliest stages, economists and other experts predicted that the housing market – along with many other large sectors of the economy – would come to a halt. As a result, many lumber producers sent their workforce home and shut down operations completely.
With lumber production coming to a virtual halt, demand grew at the same time. Many Americans were spending more time in their homes. As a result, more than a few of them decided they needed an addition to their house or to build a completely new one.
The booming housing market and lack of lumber production created by the pandemic created a (not so) perfect storm that sent lumber prices soaring. Adding to the issue, many economists predicted the housing market would cool during the pandemic. Lumber producers took this advice and slowed down production so they wouldn't have too much product. Oops!
Shortages Of Skilled Labor
Lumber production can’t be turned off and on like a light switch. Getting production up and running again takes time, and getting the skilled labor needed to ramp up production remains difficult.
As you’ve probably heard, labor shortages have been a major problem throughout 2021 and into 2022, and some industries have been hit particularly hard. Not only has the labor shortage reduced the number of workers available for the lumber industry, it has also created a shortage of truck drivers, which contributes to the supply chain problems.
Delays In Shipping
Throughout the pandemic, there has been an increase in supply chain bottlenecks when it comes to ports, truck and rail transportation. Some of the trade barriers in place have caused congestion at ports, meaning it takes longer for supplies to get to their final destinations.
Environmentally Sound Practices
Sustainable forestry practices make lumber more expensive and place limits on how much lumber can be harvested. However, these practices are necessary now to prevent more drastic shortages of lumber in the future.
The past year included some extreme weather, including freezing temperatures in Texas and wildfires in the Pacific Northwest. Unfortunately, these weather patterns have also contributed to the shortage of available lumber.
Why There Is A Lumber Shortage: Demand Side Factors
Now that you have a sense of the supply issues that have made lumber so expensive, let’s look at the demand side of this issue.
As mentioned before, there is a serious housing shortage across the country. Frustrated home buyers who’ve been unable to buy an existing home have turned to new home construction, which has in turn fueled even greater demand for lumber.
Home Improvement Projects
With a red-hot housing market and lack of inventory, many current homeowners would like to move but are afraid to jump into the market. Instead, they are undertaking home improvement projects. Which, of course, often requires lumber.
Popularity Of Wood Finishes
If you have watched any HGTV lately, you know that home interior trends currently favor wood finishes, like shiplap. With more wood finishes being desired by consumers, the demand for lumber increases.
Government Stimulus Checks
The pandemic was financially crippling for many people. But for others, it was entirely the opposite. Not only were people spending less money in other areas, but government stimulus checks put even more money in people’s pockets to help them make a down payment on a home or invest in other home renovations they’d been planning.
When Will Lumber Prices Return To Normal?
Lumber prices soared in 2021, largely due to the combination of the decreased lumber supply with the increased demand. Prices began spiking in the second half of 2020, and skyrocketed even further in 2021, reaching all-time highs. According to the National Association of Home Builders, these prices increased the cost of building an average new single-family home significantly.
Lumber prices in 2022 have been better than last year, but are still high from a historical long view. As mentioned previously, lumber is traditionally a volatile commodity, so it’s never easy to predict the rise or fall of prices. Efforts are underway to resolve global supply chain problems and employment shortages, so that’s a good sign, but it’s an uphill battle.
The Bottom Line: It’s Hard To Say When Markets Will Normalize In An Uncertain World
Market forces set lumber prices and with so much uncertainty in the world today, and so much consumer demand for new homes, we can expect lumber prices to remain high and volatile. Interested in learning more about how to buy land and build a house and other real estate related topics? Read more in our Learning Center.
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