After months of dealing with COVID-19 issues, who would have predicted that one of the biggest hindrances caused by the virus would be the soaring price of lumber.
Not a day goes by without someone mentioning how the price of materials, especially lumber, continues to cause delays and increases in the overall price of new homes. While this is not just a Tarrant County Tuesday issue, I thought it would be helpful to do a little research on the topic.
The Slump That Never Came
No one likes to get stuck with items they can’t sell. When the pandemic started affecting economies across the globe, many companies started cutting back on purchasing materials in expectation of a slump then a gradual rise back to typical levels once the pandemic subsided. That is what happened in the lumber industry.
Many sawmills around the world came to a complete halt, logging crews were unable to harvest the trees, and in many locations home renovation and construction ceased. Once virus-related rules and regulations eased a bit and allowed “non-essential” work to continue, the immediate demand for materials skyrocketed and caught everyone off guard.
Of course, with low interest rates, continued migration of buyers to states like Texas, and construction companies anxious to start making money once again, the housing boom continued … only with very few stockpiles of materials.
The slump never came, neither did the gradual demand to pre-COVID levels. And now we have a crisis.
Lumber Prices And New Construction
Have you heard there is a housing shortage in many areas of the country — certainly the Dallas-Fort Worth area?
Not only are we dealing with a decline in the available inventory for existing homes, but in new homes as well. It’s not as if lumber companies can just flip a switch and start production. Along with new regulations, environmentally conscious politicians in power, and tariffs imposed by the Trump administration, the price of lumber has soared in the past 15 months.
Recently the National Association of Home Builders estimated that skyrocketing lumber prices are adding nearly $36,000 to the overall cost of a new home.
Lumber is the main ingredient in a home — framing, siding, trusses, joists, flooring, sheathing, cabinets — it’s not like a builder can easily substitute another material to frame a home or build cabinets. Certainly, there are other materials out there, but they are not as user-friendly and certainly not more cost-effective.
What Does The Future Look Like For Lumber?
On May 7, 2021, lumber prices peaked at $1,686 per 1,000 board feet. In comparison, on May 7, 2020, the price of 1,000 board feet of lumber was $332! In 12 months the price of the same exact item increased 500 percent! That is an unsustainable increase, to say the least.
Stability does appear to be on the horizon. On June 11, Business Insider reported that lumber prices had dropped for the eighth straight day. While that sounds like a positive step in the right direction, the price was $1,059 — a far cry from June 11, 2019, when the price was $373.80.
With so many companies and manufacturers across the globe still reeling from COVID-related losses, one thing you can take to the bank is that lumber prices will never go back to where they were. Even if supply and demand were at a state of equilibrium — those in power would still manipulate prices enough to recoup lost costs from 2020.
Many estimate that lumber will hover around $800 to $1,000 per 1,000 board feet for the foreseeable future, so that means home prices are unlikely to substantially drop anytime soon. Thanks again COVID-19.
