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Nathan C. Waley
July 7, 2021

Why Lumber Prices are so High Right Now?

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Lumber and plywood prices have been at record highs due to a multitude of compounding factors. This economic issue has caused supply chain disruptions and price challenges for home builders that ultimately impact the consumer. These issues are more related to macro environmental factors and housing specific issues rather than general inflation impacting pricing. The two main causes of the supply shocks are derived directly from the pandemic and increasing consumer sentiment in the housing sector.

The pandemic provided a unique challenge to the lumber supply chain. The U.S. has a large supply of lumber from the south and northwest but is still reliant on other nations such as Canada, China, and Sweden to fill the gap needed to meet demand for lumber. The advent of COVID-19 put a halt on inter-country lumber trade.  In addition, many lumber mills in the U.S. we forced to close leaving distributers with little to no lumber to meet their customer’s demand. Lumber mills are incredibly dependent on machinery, equipment and materials that require significant time to prepare after a lengthy time without use. Upon reopening the decrease in supply but steady demand caused U.S. based loggers to ramp up their production. This meant felling forests that were earmarked for later years. The stress on lumber markets was exacerbated by a quick increase in demand after reopening caused by home re-modeling projects and a return to homebuilding. Throughout the last year lumber pricing soared 250% above its pre-pandemic levels and on average added $24,000.00 to the price of a single-family home.

 

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In addition to the supply chain issues, new housing project continued with vigor. As of April 2021, U.S. housing starts reached a 15 year high. The insufficient supply of existing homes is underpinning forcing individual to build a new home. The housing demand increase could be linked to more individuals now working from home and caring for their kids attending school from home.  These factors are leading to home buyers wanting bigger and more expensive accommodations to accompany the new style of living. The demand for new housing is not limited to single-family homes, multi-family housing projects also increased approximately 30%. Many multi-family projects use some metal framing but is still heavily reliant on soft wood lumber and plywood for exterior walls, joists, and subflooring

The commodity markets are expected to level out in 2022 as prices return to pre-pandemic levels in 2023. Severyn Development has not been immune to these issues and has felt the pressure from all related factors. However, our close relationship with our lumber supplier has enabled some mitigation of the negative effects. We are closely monitoring the changes and adjusting as necessary to maintain the quality our clients expect.

https://fortune.com/2021/03/31/lumber-prices-2021-chart-wood-production-high-why-is-lumber-so-expensive-right-now-home-prices-data-update/

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