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When Will the Price of Lumber Go Down?

Millionacres logo Millionacres 5/14/2021 Motley Fool Staff
a large room: When Will the Price of Lumber Go Down? © Provided by The Motley Fool When Will the Price of Lumber Go Down?

The price of lumber has tripled from last year, and framing lumber used for homebuilding is up almost 250%. What cost $350 per thousand board feet last April cost almost $1,200 per thousand board feet this April. This leads to a rise in home prices, keeping many first-time homebuyers out of the housing market. Are there signs the price of lumber will go down any time soon?

Why the high prices?

To understand whether the price of lumber will go down any time soon requires some understanding of why lumber is so high in the first place. Here are a few reasons:

  1. Mandated lockdowns

State and local governments, either wittingly or unwittingly, were largely responsible for the increased price of lumber we're now experiencing by putting in place stay-at-home and social distancing orders to lumber mill workers. This led to a reduction in the amount of lumber produced.

2. Slow reaction from lumber mills

In the beginning of COVID-19, people thought housing would be in a slump, much as it was during the 2008 housing crash. But that didn't happen -- far from it. When the demand for housing soared, lumber mills didn't react in a timely manner. And the ramp up to the levels needed will take time, says Dustin Jalbert, senior economist at Fastmarkets RISI.

3. Highest level of home renovations ever seen

As people were ordered to shelter in place, they began noticing home improvements they could make. The prevailing reasoning: If they were required to spend more time at home, they wanted to make that home as comfortable as possible. Homeowners started building new play places and outdoor decks for the children who were not allowed to attend school or go to public parks. They built additions to make extra room for a new home office that became a necessity if they were told to stay away from the office. Some homeowners, flush with cash from not traveling (and from being stuck at home), used that money to improve the home.

4. Tariffs

There are tariffs on Canadian lumber being imported to the United States, which makes imported lumber from Canada more expensive.

The climate today

Now that lumber prices have become so high, loggers are starting to get busy once again, and lumber mills are ramping up production. Besides that, the National Association of Home Builders (NAHB) have been meeting with Congress, urging them to address the rising price of lumber and to take steps to help increase supply. The NAHB is also asking Commerce Secretary Gina Raimondo, Joe Biden, and people in the industry to do something, such as examine the supply chain and to seek an immediate remedy to this problem.

Alternatives

Although lumber currently accounts for at least 90% of all homes built, there are alternatives: non-wood materials. One example comes from a Bay Area homebuilding startup called Veev. Veev has eliminated lumber from the building process and instead relies on high performance surface (HPS) plus steel. Using a prefabricated approach, Veev completes homes at a fabrication facility and then ships the product to construction sites.

The Millionacres bottom line

Home prices are up, on average, $36,000 from last year -- mostly due to the high price of lumber. The good news is that Robert Dietz, chief economist for the NAHB, doesn't think prices will rise any higher. But if you're looking for an answer as to when lumber prices will drop, if you ask Dietz, he thinks they'll be elevated for the rest of this year, anyway.

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