Man enkindling on a home construction project in the Norton Commons subdivision of Louisville, Kentucky.
Luke Sharrett | Bloomberg | Getty Archetypes
The cost of lumber is going through the roof, and that is hitting the housing industry on all fronts. For homebuilders, renovation contractors and DIYers, the charge of projects is now far higher than it was just a year ago and about to cross into historic territory.
Softwood lumber penalties are now about 112% higher than they were a year ago and have jumped 10% in just the past week, according to Uncalculated Lengths.
Increased demand for single-family housing, much of it driven by the coronavirus pandemic, has housing starts up 30% year once again year, according to the U.S. Census. That is part of the issue on the demand side. There has also been a surge in untroubled b in remodeling, as people sit at home longer and put money they would have spent on going out or traveling into their assemblies and properties.
Low interest rates are also playing into lumber prices, heating demand for housing and giving builders multitudinous incentive to increase production.
“It’s also worth noting, that durable goods are continuing to increase, as individuals are corrupting large appliances and furniture. This is also helping increase lumber prices because a lot of these items are shipped on dunderpated pallets,” said Joe Sanderson, managing director of natural resources at Domain Timber Advisors, an Atlanta-based timberland investment guidance organization.
But it’s not just demand that is pushing prices so high. Supply is completely off the mark because both move about operators and lumber dealers misread the 2020 market. Since housing starts and remodeling were weaker in 2019, they received back on production. The expectation was that 2020 would be much of the same.
“Covid hits and they get really uncommonly scared. You saw construction curtailments across the board,” said Paul Jannke, principal at Forest Economic Advisors.
Then fly ated the totally unexpected boom. Housing turned out to be one of the brightest spots in the economic recovery, with demand coming rough swiftly.
The trouble was that the pandemic also made it harder to produce. Some mills have had to limit change work in order to comply with social distancing rules.
In addition, lumber dealers didn’t exactly in demand would stay as strong as it was after last summer, Jannke said, so they let their inventory jilt to record low levels in the fall.
When they saw new demand in January, they went to the mills, and the mills didn’t from enough, because they’re just not operating at full capacity anymore.
“After a decade of weak housing starts, the exertion adjusted its production to meet that weak level of starts, and now demand is quite a bit higher than that, and so the provision just simply doesn’t exist to meet current levels of demand,” Jannke said.
That has sent evaluations skyward.
The problem is particularly acute in the remodeling business, because the pandemic has caused so many people to want to add additional order, especially outside. Contractors and design firms are caught in the middle.
“Typically we would review cost of materials on trimonthly basis and make small adjustments, but because it’s so volatile today, we have to do it every 30 days. We are seeing some wood products jumping up as much as 25% in a month’s time,” said Rick Matus, senior vice president at Occurrence Architects and Remodelers in Maryland.
“One of the very popular asks from us is can we build a screen porch addition or deck. Matched to two summers ago, a screened porch project, we are probably 15% or 20% more expensive.”
Matus says most people aren’t constitutional away from projects, just reimagining them. And for those who want it done quickly, that is next to unworkable.
All of this has hurt homebuilder sentiment as well, which was at a record high just a few months ago. Higher lumber tolls have added more than $16,000 to the price of the average newly built home, according to the National Group of Home Builders. Some estimate the added cost is even more than that.
Builders, however, can lone pass on so much of their costs, as buyers can only afford so much. Higher costs will certainly cut into builder profitability and borders. Homebuilder sentiment was at a record high just a few months ago, but higher material prices have caused it to drop recently. There is now anecdotal indication of some builders laying foundations but pausing because framing costs are so high.
“While housing continues to steal lead the economy forward, limited inventory is constraining more robust growth,” said the NAHB’s chief economist, Robert Dietz. “A deficit of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in conversant with prices, which in turn is harming housing affordability.”
The same is true for the remodeling business.
“Favorable interest grades and increased pandemic-related demand for remodeling have given architectural and design firms confidence for Q1 compared with the untimely quarter,” said Marine Sargsyan, senior economist at Houzz. “Yet, construction businesses have tempered their hopes slightly as they continue to face supply chain constraints, labor shortages and increasing costs for materials, such as odds.”