By Noah Rothstein
Lumber prices surged to record highs this year on the back of booming demand from homebuilders and do-it-yourselfers with plenty of time on their hands. The price surge was indicative of rampant inflation.
But over the past two months, lumber prices have been dropping equally fast, giving weight to the Federal Reserve’s argument that pandemic price spikes for many products are likely to be temporary.
Lumber prices may have fallen, but they are still elevated, creating new headaches for the critical housing sector. Like almost all other industries, companies in the lumber industry are wrestling with a new pandemic problem: a shortage of workers.
The increase in lumber prices is not due to a shortage of trees. Rather the lumber crunch was centered on sawmills.
“You can think of us as the grain mill in the ecosystem of the timber industry,” says Ross Stock, a third-generation sawmill operator who runs Western Cascade Industries in Toledo, Oregon.
In the early months of the pandemic, many sawmills shut down, both for health reasons and because they assumed demand for lumber would plummet.
Instead, demand took off. Stuck at home, Americans in large numbers began adding decks, repairing fences, and even building treehouses.
According to the National Association of Home Builders, single-family home construction jumped 12% last year, and remodeling activity climbed 7%. Meanwhile, domestic sawmill output rose just 3.3%.
As a result, lumber prices soared from $349 per thousand board feet in April 2020 to $1,514 this May, according to the trade journal Fastmarkets Random Lengths.
“It was absolutely an astonishing run,” Stock said.
That run on lumber prices sparked concerns about inflation as prices for a range of goods also jumped.
Since lumber prices peaked in May, however, demand has cooled sharply.
“People are stuck at home less. They can go out and travel more. They can go out to restaurants and bars,” says Dustin Jalbert, a Fastmarket economist who follows the lumber industry. “In the home centers like Home Depot, Lowe’s, the wood volumes going through there have slowed substantially, especially for items like decking and fencing.”
Professional home builders are also tapping the brakes, in part because it’s taking longer to get appliances, doors, and other building materials.
Florida homebuilder Chuck Fowke ordered windows for a house he was building in November. They finally arrived six months later.
“You have builders who have building permits that aren’t starting the houses,” says Fowke, who’s also the chairman of the National Association of Home Builders. “You have some that poured their slabs, and they haven’t gone any further.”
In the last two months, the composite price index compiled by Random Lengths has tumbled by 50% to $770 per thousand board feet.
Despite the recent drop in prices, lumber still costs about 80% more now than it did before the pandemic, a premium that builders say is adding tens of thousands of dollars to the price of a new home.
The supply of lumber is still not growing very fast. Sawmill operator Ross Stock said building a new mill would cost tens of millions of dollars.
“The challenge right now for a builder is, if you’re asked to give someone a price for a home, it’s very difficult,” said Fowke. “We’re used to having prices change every six months or every twelve months. We’re getting price changes every two weeks.”
Lumber prices most likely won’t return to what they were pre-pandemic for some time. These effects on the lumber industry epitomize the unprecedented impact the pandemic has had on all sectors of the economy.
