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Lumber Prices Are Through the Roof. Why?

Posted on May 7, 2021 in:
  • RBC
  • DBIC
  • SBC
  • Housing Affordability
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Lumber roof truss

The cost of lumber is up a staggering 280%. Builders are having difficulty finding enough lumber to complete projects amid shortages and paying tens of thousands of dollars more than usual. The cost of housing has increased significantly: constructing just one single-family home is now nearly $36,000 more expensive because of skyrocketing lumber prices.

Why is there a shortage of lumber in the United States?

A variety of market conditions and consumer choices are driving shortages and increasing prices. This is on top of already higher lumber prices due to tariffs on Canadian lumber imports implemented in 2017.

Pandemic Projects

The vast majority of Americans spent significantly more time at home this year and in 2020. The pandemic led to millions of mandatory work-from-home orders across states and industries. With travel at a standstill and plans on hold, many Americans started doing home improvement projects to occupy their time amid stay home orders. Decks, fences, sheds, chicken coops, raised garden beds—normally these smaller projects would not affect lumber, except millions of individuals headed home improvements stores in 2020 to buy building material. Moreover, larger home remodel projects also occurred at a greater rate, such as additions for home offices and complete overhauls of outdoor living spaces.

  • “Americans’ remodeling caused a lumber shortage at some retailers and contributed to rising lumber prices. ‘When you saw so much production come out and demand picked up more quickly, nobody had inventory in the channel, and it’s just been a scramble ever since,’ said Devin Stockfish, CEO of wood-products producer Weyerhaeuser Co., during a July earnings presentation.” Wall Street Journal
  • “Home extensions and additions jumped 52%, and security and privacy also saw much greater demand with interest in fence installation and repairs up 166%.” CNBC

Lumber Mill Challenge

In the past, a larger number of lumber mills used to operate in the Pacific Northwest, specifically small- to medium-sized operations. Twenty years ago, these smaller operations might be running one shift normally, but in times of high demand could add a second or third shift to their production. This ability to ramp up production in already established mills helped flood the market with more product, keeping prices stable. Unfortunately, many of these local, smaller mills went out of business, leaving just the larger mills that are already running at full capacity. Lacking the ability to ramp up production, shortages were difficult to address. Further, it takes at least two years to get a lumber mill up and running, and most investors are unwilling to take on the risk, knowing that market demand will fluctuate.

The lumber industry did not anticipate the effect the COVID-19 pandemic would have on consumer behavior, as well as the building industry at large. The unpredictability and uncertainty the pandemic initially caused mills to slow production in anticipation of a housing drop-off. With hindsight, we know the exact opposite happened. In addition, labor shortages in the timber and lumber industries have exacerbated the supply problem.

Although in many areas of the southern U.S. there is a glut of timber available, that is not translating into available lumber in the market.

  • “As the pandemic crushed the US economy last spring, sawmills shut down lumber production to brace for a housing slump. The slump never arrived and now there isn't enough lumber to feed the red-hot housing market.” CNN Business
  • “‘Finding lumber workers was challenging pre-Covid-19; during the pandemic, it’s been even harder. Sawmills have had a hard time staffing up and adding shifts, not only because of Covid-related restrictions and safety measures but also because a lot of people don’t want to work those types of jobs.’” Vox
  • “‘There's an under-supply of labor at all levels in this industry, whether it's logging, mills or truckers,” … “I spoke with a mill operator recently who said he hired five people, and he said one person showed up for work, and they worked for two days. So, that's a big issue.’” AG Web

Historic Housing Shortages

The U.S. struggled with historically low housing supply before the COVID-19 pandemic hit, and demand for new homes did not stagnate as some predicted. Although the pandemic paused housing for a few months or so depending on the market, the demand quickly recovered at an even greater rate. America was severely underbuilding homes for years since the Great Recession, and the simple principle of supply and demand explains rising prices, bidding wars, and homebuilding fever across the nation.

Here in the Puget Sound region, we know the problem is even more severe. PSRC’s Regional Housing Needs Assessment reports that 810,000 more homes are needed in the central Puget Sound region (King, Snohomish, Pierce, and Kitsap counties) by 2050 for there to be enough housing options for all current and future residents.

Low mortgage rates have also driven demand across the country as prospective buyers—who may have been waiting—decided to purchase homes. Homebuilders across the nation are building as quickly as possible as markets heat up from Billings, MT, to Stamford, CT, putting further strain on lumber supply.

  • “‘Currently, there are fewer than three months of supply of homes on the market, the lowest on record since the turn of the century,” says Matthew Speakman, an economist at Zillow.’” Forbes
  • “‘We’ve got an acute shortage of supply on the market for sale at the same time that record low mortgage rates are driving the appetite to buy by millennials and Gen-Xers.” CNBC

What’s Next

It’s difficult to predict when lumber prices will go down.

There are some who theorize that as Americans begin to return to the office, the home improvement boom will slow and reduce pressure on lumber prices.

As lumber is a national problem, MBAKS has been engaging with the National Association of Home Builders. NAHB is tracking this issue closely and working with the Biden administration on how best to address this problem. We will continue to keep our members informed on national advocacy efforts. Several resources to note:

  • Framing Lumber Prices, NAHB
  • Solving the Lumber Crisis, NAHB

Finally, MBAKS is reaching out to our federal delegation, asking them to take steps to remove the Canadian lumber tariff. The national market is strong and such protective measures only serve to increase housing prices.

As this critical issue continues to burden the homebuilding industry, we will keep members apprised of any updates and advocate for steps to lower lumber prices.

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