Most people do not track commodities futures. However, we are all financially affected by raw material prices whether it is orange juice, cotton, corn, or the subject of this article – lumber.
Lumber is measured in dollars per 1,000 board feet. A year ago today, May 11, 2020, lumber closed at $331 per thousand board feet. On May 7, 2021, lumber closed at $1,678 per thousand board feet. That’s a whopping 407% increase in one year! (https://markets.businessinsider.com/commodities/lumber-price). According to the National Association of Home Builders (NAHB), the rise in lumber has added nearly $36,000 to the cost of building a new home, or $13,000 to build multi-family homes. In turn, this has increased rents by $119 per month.
Why? It comes down to Econ 101: supply and demand. Last spring’s stay-at-home orders paused and reduced mill production capabilities. The dramatic job losses rightfully gave the expectation that discretionary spending would decrease. However, demand for building and new projects, both residential and commercial, drastically increased.
The housing industry weathered the pandemic last year with low interest rates and government stimulus packages. Homebuilding and many housing markets saw an uptick in activity. Additionally, in areas where outside dining was permitted, many bars and restaurants scrambled to build new seating areas.
The NAHB worked with former President Trump’s administration in 2020 and now the Biden administration to review Canadian tariffs, which average 20%, hampering the needed softwood imports from our northern neighbor. Legislation may come through to reduce the cost of imported materials. It would be a welcome development.
When, if ever, will the price of lumber go down? It is difficult to say. Your specific situation may dictate if you build now or wait and see. You may save money if you’re able to hold off on a construction project or a home improvement project. Meanwhile, the cost of an unexpected home repair may take more out of your rainy day funds than it used to. At some point, mills will bring the supply and demand back into balance and could possibly tip the scales the other direction.
