Lumber prices have risen again in the United States over the previous month. Since the start of the COVID-19 pandemic, the price of lumber has been volatile, sharply plunging and unexpectedly soaring during the last two years.
Despite a brief drop in pricing in the new year, lumber prices have risen steadily throughout February, reaching $1,272 per thousand board feet, the highest level since summer 2021.
According to the Labor Department’s most recent producer price index report, softwood lumber prices increased by a stunning 25.4 percent in the month of January alone.
Is it likely that lumber prices will fall in 2022?
When COVID-19 first hit in early 2020, most timber suppliers cut production, assuming that the broader economic environment caused by widespread lockdowns and uncertainty would delay building activity and, as a result, diminish demand for housesand, as a result, wood.
Instead, home purchases and remodeling increased as a result of the development of remote work, which coincided with the entry of millennials into their peak home-buying years, creating a perfect storm that the lumber sector had not anticipated. Construction didn’t slow down though, since the industry was immediately designated “vital” by regulators.
In 2020, prices for the critical home-building commodity skyrocketed as a result of this. However, by mid-2021, the price of lumber had plummeted as the industry’s output had stabilized.
The recent timber price increase, according to David Logan, senior economist at the National Association of Home Builders (NAHB), is due to many factors:
- Supply chain constraints for framing kits are causing more builders to postpone their projects.
- In November 2021, severe flooding took away some infrastructure in southern British Columbia and Washington (two major lumber production areas).
High lumber tariffs, together with growing home demand, are also causing the spike in timber prices, according to Zach Fritz, an economist with Associated Builders and Contractors.
The US Department of Commerce said in November 2021 that tariffs on softwood timber imported from Canada would rise from roughly 9% to 17.9% in 2022. Fritz pointed out that this is a little reduction from the previous administration’s 20 percent lumber tariffs, which were reduced to 9% in December 2020 in the face of historically high lumber prices.
Demand for new housing
Housing starts also hit their highest level since September 2006 in November 2021. “Several factors, including the influx of millennials into the housing market, retirees downsizing, Americans migrating in large numbers from the Northeast to the South and Southwest, and pandemic-induced shifts from urban to suburban living, have boosted demand for new housing to levels not seen since the mid-2000s,” Fritz said. “Because lumber is a key component of residential building, accounting for roughly one-sixth of the total cost of a home, demand has skyrocketed.”
The trends that are driving up lumber prices aren’t going away anytime soon. The lumber tariff issue between the US and Canada stretches back to the early 1980s. Permits for new residential building have remained near their highest level since 2006, despite historically low housing inventories.
“With tariffs in place and home demand expected to outstrip supply for some time,” Fritz added, “expect lumber prices to remain high for the foreseeable future.”
The United States uses lumber to construct more than 90% of its single-family homes, a much larger percentage than the rest of the globe. In the United Kingdom, for example, only approximately 20% of single-family homes are constructed with lumber. This trend will not reverse very soon, according to Fritz, because the two main substitutessteel and concretehave also suffered rapid price hikes in recent months.
Board feet prices 254% higher than pre-COVID price levels
Logan noted at the time of writing, “Futures markets anticipate that lumber will remain above $1,000 per thousand board feet until September 2022.” Logan and other industry observers can only point to futures pricing because NAHB does not publicly forecast commodities prices.
The huge increase in the cost of building materials has resulted in project delays and cancellations across the country. According to Logan, the data shows that the number of single-family units sanctioned but not started is at its highest level since April 2007. Furthermore, single-family starts have climbed by 31% since January 2018, while the number of units permitted but not started has increased by 70%.
Logan went on to say that interest rates, which have already begun to climb this year, are anticipated to rise further through 2022, creating a headwind for the construction industry, which has benefited from supportive monetary policy since the outbreak began.
Is a price decrease in lumber likely soon?
- By 2022 or 2023, lumber prices are likely to return to their previous levels. This does not, however, imply that the lower prices are simply transitory.
- Once lumber prices stabilize, the price reduction will pave the path for new technologies and construction techniques. This could result in a number of positive developments for American households.
- Even if timber costs rise again in the future, homebuilders should expect to see a considerable increase in the affordability of housing and other construction projects for years after 2021.
- Outside of the property sector, the price decline has created new business prospects. Lumber prices have decreased to the point that they are now cheaper for industrial usage than some forms of paper and plastic. This means that switching from old methods will save firms a large amount of money on raw materials.
- Many experts across the country have dubbed 2021 “The Year of Timber,” predicting that the lumber trade will be the most critical element in determining the housing market’s future.
- Lumber prices are projected to climb once more, but only slightly. This indicates that if homebuilders and real estate developers take advantage of their cheap rates now, 2021 might be a terrific year for them.
- This decrease in lumber costs is good news for the housing market, and it does not portend negative news for the rest of 2021.
- Lumber prices are likely to recover to former levels by 2022 at the earliest, giving homebuilders and real estate developers plenty of time to take advantage of the current low pricing before they skyrocket.
Why has the cost of lumber increased?
Lumber prices are increasing once again, upsetting the housing industry and threatening house affordability, after a few months of moderated costs last spring and summer.
According to NAHB standard estimates of timber used to build the average home, lumber costs have nearly quadrupled in the last four months, leading the price of an average new single-family home to rise by more than $18,600. This increase in lumber prices has increased the market value of the average new multifamily housing by roughly $7,300, resulting in households paying $67 more per month to rent a new apartment.
According to Random Lengths, the price of framing timber has surpassed $1,000 per thousand board feet as of Dec. 29, a 167 percent rise since late August.
The softwood lumber that goes into the average new home, as collected in the Builder Practices Survey performed by Home Innovation Research Labs, was used by NAHB to compute these average home price increases. Any softwood used in structural framing (beams, joists, headers, rafters, and trusses), sheathing, flooring, and underlayment, interior wall and ceiling finishing, cabinets, doors, windows, roofing, siding, soffit and fascia, and exterior features such as garages, porches, decks, railing, fences, and landscape walls are all included.
Why Lumber Prices Have Surged
The unprecedented price volatility in the lumber market began in April 2020, when the COVID-19 pandemic spread and sawmills slowed production in expectation of lower demand. Lumber mills did not scale up output in response to the fact that housing weathered the storm considerably better than expected and demand remained robust in the months that followed.
Lumber prices peaked at a record-breaking $1,500 per thousand board feet in May 2021, before gradually declining until late August, due to sawmills’ sluggish response and a significant increase in demand from do-it-yourselfers and big box stores during the pandemic.
- Increased price volatility due to a doubling of duties on Canadian lumber imports into the US market.
- Summer wildfire season in the western United States and British Columbia has been exceptionally active.
NAHB Actions
While lumber prices remain stubbornly high, NAHB continues to work tirelessly with the White House, Congress, and lumber producers to alleviate supply chain interruptions, increase lumber production, and lower material prices. This is the association’s top priority. NAHB has made the following steps in the last few weeks:
- 84 members of Congress wrote to Commerce Secretary Gina Raimondo in late December at NAHB’s request, expressing grave concern about the Commerce Department’s recent decision to double tariffs on softwood lumber goods from Canada. The letter also urges the US to resume negotiations with Canada on a new softwood lumber trade agreement.
- The NAHB met with top Canadian officials at the Canadian embassy in Washington in early December to discuss major softwood lumber concerns, including the urgent need to initiate negotiations on a new softwood lumber deal that would eliminate tariffs.
- On Dec. 3, NAHB issued a letter to President Biden, urging him to work with Canada on a new softwood lumber accord and increase American lumber production to battle high lumber costs.
- Over the holiday season, NAHB engaged its grassroots by having members call or write their members of Congress, urging them to tell President Biden to negotiate an updated softwood lumber agreement with Canada and increase U.S. lumber production by harvesting more timber from U.S. forest lands through BuilderLink.
- Sens. Jeanne Shaheen (D-NH) and Jerry Moran (R-Kan.) wrote to Commerce Secretary Gina Raimondo in late November to express their opposition to the Commerce Department’s decision to double tariffs on Canadian lumber imports into the United States, citing NAHB’s assertion that historically high lumber and building material prices continue to be a headwind for the housing sector in the United States.
- On October 20, NAHB Chairman Chuck Fowke spoke before Congress, urging lawmakers to address supply chain constraints that are compounding the housing affordability crisis.
- On Oct. 6, NAHB wrote to Biden, urging him to address lumber and building material supply chain bottlenecks that are driving up construction prices and threatening housing affordability.
Government Affairs, Communications, Economics, and Legal the NAHB advocacy team continues to work relentlessly on all fronts to develop solutions that will secure a long-term and consistent supply of timber and other construction supplies for the home building industry at a reasonable price.
Is it possible to buy lumber futures?
What is the best way to trade lumber futures? Lumber futures contracts are traded electronically through Schwab and are offered by CME on the Globex trading platform. To trade lumber futures, you’ll need a futures account that has been approved.
Is Wood currently expensive?
“Lumber costs are likely to climb in the coming year, and if the current trend of high pricing continues, the price will have treble by 2025,” says Richard Fung of Forever Homes, a custom home builder. “The cost of lumber per board foot is currently $1,024.30. According to forecasts, the price per board foot might reach $1,516.96 next year. Throughout the year, the price has risen steadily.”
Why is there a lack of lumber in 2021?
Since the outbreak of the coronavirus pandemic, supply chain challenges have resulted in product and goods shortages all across the world. Still, few commodities have experienced as much volatility in the last year and a half as lumber. For much of 2020 and 2021, lumber was in short supply, sending prices to unprecedented highs, before leveling down this summer as supply finally caught up to demand. The supply of lumber is starting to tighten again, and prices are rising as a result. The three main causes currently limiting lumber supply in the United States are listed below.
Why is wood so costly in the year 2021?
Because of supply and demand, as well as the myriad factors that drive both, lumber is expensive.
Suppliers have struggled to cover the gap in lumber demand as well as meet existing demand for wood because to the COVID-19 outbreak and inflation.
Why is plywood so costly at the moment?
Because homebuilding can go up and down far faster than sawmill capacity, wood product prices often fluctuate more than most goods. Other applications of wood goods, such as non-residential construction, crates, and pallets, are more stable, although new housing is the most common, followed by home repairs and renovation, all of which are highly cyclical.
In North America, particularly in the southern forests, wood is plentiful. Modern mills are extremely efficient at converting logs into 2x4s and plywood sheets. Because of the short-run dynamics of demand and supply, lumber and plywood prices are at an all-time high.