The Supply Went Up in Smoke

With prices rising for many commodities, it is not surprising that lumber prices are also going up. However, the magnitude of lumber prices rise is painful for many, and what to expect is the key question.

Lumber Prices (which cover a combination of hardwood and softwood lumber) in March reached their highest level in over 95 years, and the rate of rise is the fastest in over 73 years. What makes the rate of rise noteworthy for Lumber Prices compared to other commodities prices is that the extreme rates of rise in many of the latter are attributable to unusually low prices last March and April. In contrast, Lumber Prices were rising last March, and there was only a brief dip in Prices last April, as COVID-19 related-shutdowns ground the economy to a temporary halt. Lumber Prices were back above pre-COVID levels within two months.

The extreme rise in Lumber Prices is multifactorial; these factors' combined grip on Prices will not cease in unison.

Factors at Play

Increased demand – Single-Family Housing Starts were on the rise prior to COVID and are currently at a 13-year high. However, not all the demand is coming from new construction. Quarantine led many people to examine their living spaces, and that sparked a surge in home remodeling.

While demand was on the rise, we also had supply constrictions.

COVID-19 lockdowns – The 2020 lockdowns forced mills to close in the early days of the global pandemic. Mills have come back on line, but the halt in production reduced the supply while demand was ramping up.

Safety protocols – New safety protocols at mills slowed production.

Wildfires – Even with mills able to operate, there is a significant material constraint. The record-breaking 2020 wildfire season burned approximately 8.9 million acres, nearly doubling the devastation of the 2019 season. The Oregon Forest and Industries Council estimates that the wildfires killed 15 billion board-feet of timber, and according to the council, that’s enough to build 1 million houses.

Looking ahead

Safety protocols have been worked into the system, and COVID-19 protocols are easing, which will reduce some of the supply constraint. Demand from new home construction is projected to rise through the next few years, and the ITR Remodeling Market Index™ and the savings rate suggest the remodeling side of the industry will also keep demand high for at least the near term. Couple this with the impact of the wildfires, and we are likely to see upward pressure on prices persist into at least the fourth quarter of this year.

Fortunately, suppliers and distributors are able to pass along price increases. Next year promises to be different. Let us help you with your expectations for material availability and projected 2022 costs. Email us at itr@itreconomics.com.

Jackie Greene
Director of Economics