A Shortage Of Lumber And A Demand For Homes Creates The ‘Perfect Storm’

Lumber Prices Are Stabilizing
On May 7, 2021, we saw lumber prices hit an all-time high of $1,670.50 per 1,000 board feet. How did that happen? Easy, just blend up a housing shortage, historically low interest rates, a trade war, and oh yeah—a global pandemic. The result is a perfect storm of uncertainty—which leads to market volatility. Unfortunately, this “perfect storm” puts consumers in a very awkward position. They have the means and enthusiasm to purchase but are hesitant due to the high price of lumber.

We see three distinct groups of consumers and three ways they are weathering the storm.

  1. Consumers who are willing to absorb premium prices and aren’t going to make the price of lumber get between them and their dreams.
  2. Consumers who are moving forward with design and engineering knowing that they can pause their project at any time—if necessary, and pull the trigger when lumber prices have stabilized. They understand that markets are volatile and will correct themselves over time.
  3. Consumers who are looking for alternatives to lumber, like building with pre-fabricated structural insulated panels (SIPs), which still use wood, but considerably less than a conventional stick-framed home. Or pre-fabricated insulated concrete walls with galvanized steel studs. These structures don’t use lumber at all.

Why Are Lumber Prices So High?

According to the National Association of Home Builders (NAHB), lumber prices rose more than 250% in 2020. COVID-19 plays a role here, but like many other industries, the global pandemic merely unmasked existing inefficiencies. Sure, lumber mills closed, and a labor shortage disrupted trucking routes, but what COVID-19 revealed was a lack of domestic lumber production. A lack of supply dating back to 2019 that went unnoticed due to lower lumber prices and a relatively stable housing market.

Why Do We Have a Lumber Supply Problem When We Have So Many Trees?

Whenever the lumber supply topic comes up, you’ll always have at least one person say, “I don’t understand, it’s just trees, they’re everywhere… just cut ’em down.” Unfortunately, it’s not that easy. The U.S. sources most of its soft lumber (lumber used for building homes) from Canada, and Canada doesn’t see it that way. At least, not currently. The U.S. and Canada have been engaged in a trade war for 35 years that has cycled six times with periods of a truce and periods of tariffs. We are currently in the seventh period, and you guessed it, we’re in a tariff period which makes Canadian lumber 23% more expensive.

According to the NAHB, American mills don’t produce enough lumber to meet U.S. demand, and that’s in a typical year, and this year is far from average. “Homebuilders need a consistent, reasonably priced supply of lumber to keep housing affordable for hard-working American families,” said NAHB chair Granger MacDonald.

Oh Canada, Oh Canada

Canada has a lot of lumber, and it’s the lumber we like. It’s a perfect softwood for building homes. The majority of Canadian and Pacific Northwest softwoods (wood used for homebuilding) is Douglas fir, which is in a different class when you compare it to, say, Southern yellow pine. And, if you ask any builder what their preference is, they’ll tell you it’s Doug fir. So now we’re not just looking at any tree. We’re looking at specific trees, and it might start making sense how this cycle started years before COVID-19.

However, you can’t deny that COVID-19 brought it front and center for every homebuilder in the country. That said, in times like these, Southern yellow pine may have to do. At least three Canadian-based lumber producers aren’t waiting around. They’ve invested more than $450 Million in sawmills in the southern United States, where lumber production is already at a 113-year high.

This begs the question, with production at an all-time high, why are prices still up 288%? Simply put, there is too much demand from backlogs and new housing starts. There clearly not enough supply and something has got to give.

Is $1,000 Per Board Feet The New Normal?

Devin Stockfish, CEO of Weyerhaeuser, one of the world’s largest timberland owners, addressed the Nareit REITweek Investor Conference this year. He said, “I don’t think $1,000 lumber prices are the new normal.” “With that being said, when you think about the amount of housing we’re going to have to build in the U.S. over the next 3, five, ten years, that’s a significant amount of demand for wood products.”

Markets are volatile, and prices will stabilize. But when? Nobody knows, but most experts agree it will be sometime within the next eighteen months. Some are even predicting by the Fall of 2021. So knowing there’s a market correction on the horizon should make home buyers feel much more at ease in starting the build process now. 

The Only Way To Get Lumber Prices To Fall Is To Stop Buying Lumber

If consumers stop wanting new homes and home builders stop placing orders, suppliers will release inventory by lowering prices. However, that’s probably not going to happen because we’re still navigating the perfect storm. A storm that still has low interest rates, a housing shortage, and oh yeah—that pandemic is also slowly becoming a thing of the past that will only fuel demand more. But, the people have chimed in on this and fired a warning shot. New housing starts were down 9.5% in April 2021. Not enough to bring about significant change, but enough to send a wake-up call.

We will continue to see prices decline, but they are unlikely to return to pre-pandemic levels, which ranged between $350-$500 per board feet. What’s more likely to happen is a market correction from what some experts predict at around $600 per 1,000 board feet, putting it roughly $175 per 1,000 board feet more than January 2020. That’s pretty optimistic, but at the same time, it’s a far cry from where we were in May 2021 when prices shot up to an all-time high of $1670.50 per 1,000 board feet.

Key Takeaways

  1. If you’re in the market now, lumber prices are trending down. That may sound silly, but lumber prices fell 18% last week representing the largest decline since 1986.
  2. You can start designing today without buying a single stick of lumber. At this stage in the game, lumber prices don’t matter. Contact Us For a FREE Consultation.
  3. Using SIPs, which are superior to stick framing, is now an affordable option and more sustainable and energy-efficient. It’s a win-win-win.

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