(Photo | PxHERE)
In the world of home building and remodeling, one of the biggest topics of conversation at the moment is the cost of lumber. According to the National Association of Home Builders, the escalating cost of lumber is now adding about $36,000 to the cost of a new single-family home. Random Lengths, a Eugene-based wood products tracking firm that produces an industry newsletter and has been providing benchmark lumber pricing for professionals for 77 years, reports that lumber prices are up 340 percent from a year ago.
“The industry got behind with the onset of the pandemic, and it cut back significantly in anticipation of a much more dramatic downturn in demand, but that downturn proved to be short-lived,” says Shawn Church, chief editor of Random Lengths newsletter. “Within a short amount of time, however, the construction industry was declared an essential business, so it was able to continue on with building. The other thing that happened is that people were locked down and not able to travel, so they took their savings from not traveling, and from the money the government doled out, and put that money into their homes. It ignited what was an unprecedented demand for lumber at the home level.”
Church says that the lumber pricing situation is widespread. “No one state operates in a vacuum in terms of the lumber market; it’s the same all over the country. It’s a situation where we have seen demand catapult to a level that the industry, coming out of the Great Recession, is not equipped to supply at this time. It’s trying to increase capacity and production, but demand is very strong in various segments, especially with new housing construction and single-family housing.”
Last year at this time, the wood product market was still recovering from the Great Recession of 2008-2009, Church says, and it had been slowly climbing out of the hole. “But we have really seen demand surge in the last year. There has been a tight supply at the mill level, and the increase in demand has caused prices to surge at unprecedented levels.”
Another factor affecting the current building climate is labor, Church says. “Generally, labor is a major issue in all industries looking at or needing to increase production capacity. Even if the wood products industry were better able to supply today’s level of demand for lumber and structural panels, there are labor shortages elsewhere holding back builder productivity — from window manufacturers all the way to the home builders themselves,” he says. “Bottlenecks are everywhere, not just in wood products manufacturing.”
Rising costs of other building supplies are also fueling the huge increase in home building prices. In an article on its website, CNBC reports that prices of gypsum, used in drywall, are up nearly seven percent from a year ago, and steel mill product prices are at a record high, up nearly 18 percent in March year over year. It also reports that the price of copper set a record high in April, up 27 percent year to date.
Although lumber demand continues to be strong today, Church says they are beginning to hear about a slight slowing down. “This is probably because prices have escalated to the point that consumers are deciding not to go through with projects. Also, many projects were completed last year. We are hearing of slowing at that level, but new home construction remains very stout. We have historically low mortgage rates, and we have people moving out of cities into suburbs and the countryside wanting to build single-family homes. They want to live in different places because now they are working from home. They are building offices for themselves at home.”
The National Association of Home Builders (NAHB) has launched a grassroots effort to urge the Biden administration and Congress to address the growing problem of rising lumber and material prices, along with supply shortages, according to a report on the NAHB website. The report says, “Responding to a request by Rep. Robert Aderholt (R-Ala.) to make rising lumber prices and production issues a priority, during a May 6 House Appropriations subcommittee hearing on President Biden’s 2022 budget request, Commerce Secretary Gina Raimondo responded, “I promise you I will.”
While there is no real end in sight with skyrocketing lumber prices, Church says that as with other commodities, supply and demand will ultimately dictate what happens. “We don’t forecast at Random Lengths, but we are part of a larger organization that has economists who do projections. A lot of our sources tell us there are not a lot of things pointing to an end to this, but there are a few emerging signs we see developing.” He continues, “We’ve seen record runs before, and they always come to an end. The downside can be as steep and acute as the upside, and it typically is. It’s just a matter of timing. Over time, supply and demand move toward a better balance, and price trends begin to shift.” He adds, “These are commodity markets; over time, they are corrected, and prices will rise and fall as those imbalances are corrected.”
To assist lumber industry professionals in navigating the market, the Random Lengths organization provides a variety of information and resources, including a Framing Lumber Composite Price index, which is a broad measure of lumber price movement in North America. It is an index made up of prices of key framing lumber items from all four major producing regions of North America — the Pacific Northwest, the South, Western Canada and Eastern Canada. Wood products professionals can subscribe to Random Lengths to receive the updates.
Although lumber pricing is complicating home building and affecting buyers’ abilities to purchase new homes, Church says the one silver lining in it all is that wood product manufacturers are making good money now, which may ultimately strengthen the industry in the long term. “They are taking some of this money they are making and paying off debt, upgrading equipment and making themselves stronger for the future,” he says. “The wood product industry has to decide how they are going to spend this windfall of profit.”
