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.
Why are lumber costs in 2021 so high?
Lumber prices have been extremely erratic this year. Lumber prices jumped to an all-time high in May, spurred by historic levels of demand and escalating supply chain concerns, after steadily climbing through the end of 2020 and the beginning of 2021.
The cost of wood gradually began to revert to historically average levels throughout the summer, providing relief. That appeared to be the end of the roller coaster journey that lumber had been on. However, lumber prices are beginning to rise again, causing further alarm.
From the beginning of September to the middle of October, lumber prices climbed by more than 60%, from less than $500 to more than $700 per thousand board feet. This rise caused the National Association of Home Builders (NAHB) to write to the White House, requesting that the federal government take further steps to address specific supply-chain limitations.
In an Oct. 6 letter to President Biden, NAHB board chairman John C. Fowke said, “We applaud your decision to study the building supply chain issues affecting the United States and greatly appreciate your efforts to improve transportation and logistics by easing the hours for transportation workers involved in delivering goods.”
Why are lumber prices so high at the moment?
The price increases, according to Robert Bardon, a professor of forestry and environmental resources at North Carolina State University’s College of Natural Resources and assistant dean for extension, are unprecedented.
Prices have not yet reached the peak attained in May 2021, but they are still around three times higher what they were prior to the outbreak.
A variety of variables are combining to drive up lumber costs and destabilize the market, with a construction boom being one of them.
Bardon summed up the situation: “A number of variables may be contributing to the lumber shortage and price increase. Housing demand is continuing to rise, putting pressure on the supply chain. The impact of the epidemic on the transportation networks that are used to convey the lumber is still having an influence on the supply chain. The supply chain is still being slowed by a labor shortfall.”
National sawmills have been unable to meet rising demand, and while output has recovered since the start of the epidemic, labor shortages continue to stymie production.
The cost of home construction and renovations has risen in tandem with the rise in prices. The National Association of Home Builders estimates that the rise in lumber prices has boosted home construction expenses by roughly $18,600.
The issue has been exacerbated by the recent trucking strike in Canada, while Brian Leonard, Risk Analyst at RCM Alternatives, highlighted that there is also an underlying logistical issue at play.
Furthermore, the supply chain has been disrupted as a result of tariffs as well as adverse weather conditions.
Coastal wildfires in the United States and parts of British Columbia, as well as excessive rains in the Canadian province late last yearwhich wiped out a number of vital transit routeshave exacerbated the problem.
Will the price of lumber fall in 2021?
- 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.
What is causing the rise in lumber prices?
The Canadian forestry company West Fraser Timber Co. Ltd stated in November that weekly exports in Western Canada had dropped by as much as 30%. Because Canadian woods and lumber mills supplied more than a quarter of the lumber to the American market, these interruptions had a significant impact in the United States.
Another environmental concern is the beetle infestation that has plagued Canada since the 1990s. Mountain pine beetles bury their eggs beneath the bark of softwood trees by females. Their larvae eat away at the tree until it dies over time. Mountain pine beetle outbreaks resulted in the loss of more than 750 million cubic tons of pine wood, according to the Canadian Forest Service.
Increased tariffs
An increase in tariffs on Canadian timber imports into the United States is one of the most major economic factors driving higher lumber prices. The US Commerce Department boosted taxes on Canadian softwood imports to 17.99 percent on November 24th, more than doubling the previous amount. The construction industry in the United States was outraged by this.
Why is OSB so costly?
This method is repeated until enough layers have been added to achieve the required thickness.
After that, the makers cut the board to the suppliers’ specifications.
The engineering process for OSB can be costly because it requires a lot of resources and time.
Because the engineering process requires a lot of time and effort, the product is more expensive to produce.
Thickness
Interior walls use the thinner OSB planks, whereas exterior walls, floors, and even roofing use the thicker planks.
Some builders would use 15/32″ thickness for improved endurance in areas where there is a lot of snowfall or storms.
If you require a large number of thicker OSB planks, the cost of your project may rise dramatically.
Labor Shortages
Labor shortages in a variety of industries are undoubtedly adding to the price of OSB.
There are various reasons for labor shortages, including the COVID-19 pandemic and a desire to find better work.
In the lumber sector, some people chop wood and send it to a mill to be processed.
There were fewer individuals available to cut down trees and distribute them due to a labor shortage.
Another area where labor shortages have influenced the pricing of OSB is the factory itself.
Workers must process the lumber’s wood chips and begin the production process after it arrives at the mill.
Many of these factories were also shut down by COVID-19 because they were deemed non-essential.
Those that were able to keep their doors open had to do it with fewer personnel.
There were fewer boards processed each day since there were fewer staff in the factory.
Many industrial workers chose to leave their positions for a variety of reasons, including better salary, better benefits, or just to alter their career path.
Any time there is a labor shortage, it means less things are produced, from lumber workers to delivery drivers.
Because of diverse labor shortages across the country and around the world, OSB is pricey.
High Demand
Because of its widespread application in construction, OSB has always had a high demand.
With more people working from home, they were able to focus on long-overdue household projects.
Others wanted to finally fix things around their house that they hadn’t had time to fix before.
Because OSB is used for both structural support and framework, it was necessary to employ it.
More people were buying OSB as more DIYers attempted to renovate and repair their homes.
Suppliers are still battling to fill the hole that bulk shopping created, despite the fact that demand for it has dwindled as workers return to in-office employment.
Builders are always in need of OSB, therefore suppliers don’t have the time to fill the void created by everyone else buying OSB at the same time.
The price of OSB will remain high until they can create more and meet demand.
Because of the high demand for OSB during the pandemic, it is costly.
Wildfires
As if the pandemic wasn’t bad enough, wildfires have been on the rise in recent years.
Trees used for lumber are burning in California, Canada, and the Amazon, among other places.
When there is less rain in a given location, the wood and debris become exceedingly dry.
Thousands of trees that would have been utilised in the lumber sector are destroyed by the wildfire.
Lumber firms can only chop trees on a certain amount of land, therefore if that land becomes unavailable for a period of time, they are unable to cut trees anywhere else.
Instead, they must either wait for firefighters to arrive or for the fire to extinguish themselves.
Meanwhile, they are unable to cut any more trees or bring in any factory supplies.
Because timber firms are unable to process wood during that time, there is a scarcity.
OSB is more expensive as a result of recent wildfires, which have caused delays and reduced the number of usable trees to cut.
Seasonal Shopping
The most expensive times of the year to acquire OSB are in the spring and summer.
Everyone is outside and using OSB, whether it’s DIYers, government workers, or private builders.
Because demand for OSB rises in the warmer months, the price of the boards rises as well.
Because snow and cold temperatures are common in many parts of the country, construction projects are either halted or completed before the season begins.
The price of OSB drops slightly in the winter since there is less demand for it.
OSB is more expensive in the spring and summer because to increased demand.
Home Building Increased
One of the effects of the epidemic was a temporary drop in mortgage rates.
The government ordered banks to lower their rates and halt evictions in an effort to keep people in their homes.
For people who had always wanted to buy a home but were put off by the high mortgage rates, a chance presented.
More families were able to relocate outside of the city as a result of the change to working from home.
They were looking for houses with a good yard and a fair distance from their neighbors.
As a result of the lower rates, more families are looking to buy new homes, which has increased demand for OSB.
The price of OSB soared as suppliers were unable to supply the growing demand.
Slow Mill Expansion
The time it takes to build a mill and get it up and running is estimated to be two years.
They don’t want to take the chance of building a new mill and hiring additional employees only to have to close it down because they can no longer afford it.
Because OSB is so tightly related to the housing market, it’s difficult to predict what demand will be at that time.
Because it takes a long time to expand lumber mills and boost supply output, OSB is expensive.
Why are lumber futures prices dropping?
Little’s remarks On Thursday, lumber fell to a low of $480.40 per thousand board feet, the lowest level since July 8, 2020, when it fell to $465 per thousand board feet. After plummeting by more than 9%, lumber prices are on course for their 13th consecutive weekly loss.
Lumber futures fell by more than 40% in June, marking the worst month on record since 1978. After epidemic shutdowns, Americans began going away from their houses rather than pursuing renovation and building projects, which caused the decline. Lumber prices touched an all-time high of $1,670.50 per thousand board feet on a closing level earlier this year in May, following a catastrophic low in April 2020.
Little stated on Thursday that the lumber market is currently “in this balance stage or hunt for equilibrium.”
Little explained, “What we’re finding is that the support level that follows the bottom end of that continuous trend pre-Covid is very, very positive.” “With the predicted demand that we are currently seeing, it would also make a lot of us in the timber sector feel much more comfortable going and rebuilding inventories here for the second part of this year.”
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.
Are wood prices falling?
The likelihood of a cooling housing market, accompanied by increasing mortgage rates and persistent supply-chain difficulties, has sent lumber prices plummeting from last month’s heady heights.
See: Housing Builder Confidence Drops Due to Supply Issues Will Home Prices Rise Due to Inventory Shortage?
According to Business Insider, lumber prices have dropped 30% in the last two weeks, reaching a low of $934 per thousand board feet on Tuesday. This was down from $1,338 on January 14th. According to Bloomberg, the lumber business has been in a slump since July.
The impact on home sales has already been felt. According to the National Association of Realtors, pending home sales in the United States fell 3.8 percent in December from the previous month and 6.9 percent from a year ago.