Upsurge in Housing Grows Demand for Lumber

These days, the lumber market is like a ping pong ball—all over the place. The price of lumber has risen dramatically for a simple economic reason. The demand is greater than the supply. Last November, lumber futures increased 27 percent, with a weekly closing price of $630.10 per thousand board feet. That price was a bargain when compared to the record high of $1,000 during the summer. 

According to the National Association of Home Builders (NAHB), in 2020, lumber prices rose 170 percent during the six months between April and September. These escalating prices added almost $16,000 to the cost of a new single-family home. 

Domestic Mills Reduced Production

Typically, lumber prices decline in the fall. However, the autumn was relatively mild across the country, and construction companies continued building homes. Factor in the demand created by consumers who are busy working on DIY projects and prices continued to rise. This surge in buying has almost depleted the available inventory throughout the supply chain. 

So, what happened to the stockpile of lumber? Mills were forced to shut down last March because of the stay-at-home orders mandated by the government in response to Covid-19. Production came to a standstill, and workers were laid off. Once the operations opened again, it was hard to recover and rapidly increase production. Additionally, owners anticipated demand for lumber by the housing industry would drop significantly due to the crisis. Instead, low mortgage interest rates, demand for new homes, and mild weather motivated home builders to continue forging ahead. 

For the past months, mill operators have tried to keep up with orders. Typically, construction slows in the winter, and lumber suppliers can increase production before activity picks up again in the Spring. However, the building season has been longer than expected, leaving less time for suppliers to ramp up production. 

Tariffs on Imports Increase Prices

High tariffs also drove up the price of lumber. Historically, about one-third of the lumber used in the U.S. is imported from other countries. The vast majority—95 percent comes from Canada. Until very recently, the duties on Canadian lumber exceeded 20 percent. In December, the Commerce Department reduced tariffs to 9 percent. This was welcomed news to NAHB and other organizations who had long petitioned the administration to change the situation. 

However, NAHB Chairman Chuck Fowke believes even more, needs to be done. “Tariffs have contributed to unprecedented price volatility in the lumber market in 2020, leading to upward pressure on prices and harming housing affordability for American consumers. The U.S. needs to work with Canada to end the tariffs and achieve a long-term stable solution in lumber trade that provides for a consistent and fairly priced supply of lumber.”

Consumers Played a Role in Shortage

Not only were home builders busy in 2020, but consumers also fueled the demand for lumber. Spending on home improvement products reached record levels during the pandemic. According to Max Anderson, chief economist at Porch.com, projects relating to the backyard are up sharply. From March to July of 2020, Anderson says, “Deck construction is up 275 percent, hiring landscapers is at 238 percent, fence construction installation is at 144 percent.”

Nancy Musselwhite, a building material analyst for Principia Consulting, agrees. “The demand for outdoor living products is surging. Homeowners sheltering in place during peak Covid regulations developed a renewed interest in their backyards, really as an extension of their home.” The desire to complete outdoor projects that may have been put on hold previously more than doubled the sale of deck materials and wooden fencing. 

What’s in Store for 2021

Most would agree that lumber is one of the most volatile commodities in the world. The events that happened in the market during 2020 was unchartered territory. Even Industry experts and home builders who have been in the business for years couldn’t predict what would happen next. Although most experts believe that lumber prices will not reach the same levels as last July, it’s anticipated they will be significantly higher than the prices before the pandemic. Based on projections and current data, the housing market will remain strong. Industry analysts believe the housing market will remain strong throughout 2021. Lumber manufacturers in the U.S. and Canada are preparing sawmills to ramp up production based on existing orders that will already keep them busy well into Spring. 

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