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Better Knock On Wood!

If you’re planning on building a deck in your backyard this summer (and you’re on a budget), you may want to wait a bit.

The cost of lumber in the United States has been on an all-out rollercoaster ride this year, with the price ‘per thousand board feet’ rising to a peak of $1,711.20, in early May (its highest level ever), before quickly dropping over 41% to $1,009.90, last week. That drastic fluctuation has been driven by a myriad of forces -- some legitimate, others purely speculative.

At the “official” beginning of the Covid-19 pandemic last March (when governmental measures began to take effect), sawmills across the U.S. shut down lumber production in anticipation of a housing-market crisis. However, the pandemic had the opposite effect. With idle time on their hands -- as well as government stimulus and unemployment checks lining their pockets -- a massive wave of homeowners soon flocked to Home Depot, Lowes, and Ikea to perform rehabs and other projects that they now had the time and money to complete. This phenomenon saw these companies' stock prices shoot through the roof, and the price of lumber rose steadily alongside with them.

Further, at the turn of the new year, the housing market became scorching hot (in almost all areas of the U.S.), with the number of new homes being built falling steeply behind demand -- driving prices of lumber even higher. According to the National Association of Home Builders, surging lumber prices increased the average cost of a new construction build by $35,872 -- and that’s just in the last few months.

As demand for new inventory soars past current supply, contractors, developers, and builders alike have been raking in the dough, hand-over-fist. However, the recent lumber price swings have caused a slip in confidence among home builders, this month, and lobbyists are demanding President Biden assist the market, by temporarily lifting the 9% tariff on Canadian lumber imports, among other policy changes.

The lumber market as a whole has the tendency to vary more severely than other goods, because housing market conditions (the biggest factor driving the commodity) fluctuate much quicker than the lumber output from sawmills in any given month. Given the shocking vacillations over last few months, many are wondering where the price will settle once the smoke clears.

“I don’t think $1,000 lumber prices are the new normal,” Devin Stockfish, chief executive of lumber producer Weyerhaeuser Co. opined. “But that being said, when you think about the amount of housing that we’re going to have to build in the U.S. over the next three, five, 10 years, that’s just a significant amount of demand for wood products.”

Lumber’s meteoric price rise has reached a point where it’s now clearly overvalued, as the amount of wood available for production in North America is not as scarce as you may think. Modern sawmills can turn logs into 2x4s ready for construction in record time, so the recent shortage -- and resulting price spike -- is a short-term supply chain issue in response to the current market boom.

While lumber certainly has had its say this year, prices should level off soon as supply catches up … hopefully.

Source: https://www.realtor.com/news/trends/high-lumber-prices-and-other-barriers-choke-the-confidence-of-home-builders-and-home-buyers/