Why is Lumber so Expensive? (Part 2 - Update)

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Hello All,

I thought this would be a good time to write a follow up post regarding the current state of rising lumber costs and the supply vs. demand issues the industry is experiencing. Below are a couple graphs that will give you visual context as to what is happening in the market right now. These figures are based on Per Thousand Board Feet and reflect historical composite pricing data. 

In regards to Lumber, we have once again entered new record highs as of recent and the pricing trend is showing no signs of slowing. Back in Sept/Oct 2020, most industry experts were anticipating some sort of correction around the beginning of 2021. That did not happen. In fact, quite the opposite occurred. SYP and SPF sawmills across the country still have not been able to keep pace with the growing demand. Inland species along with Hem-Fir and Doug-Fir are also in tight supply. Many economists and lumber traders are saying these price levels are here to stay for the next 6-12 months. In my last post, I noted how home builders and commercial contractors were experiencing sticker shock. Obviously, that is still happening today and many are now losing money on awarded projects that have rising material not yet procured. Unfortunately, these pricing levels are not going away. 

Plywood is also extremely tight on supply with a constant growth in demand. There is also an increase in demand for LVL products that use the same veneers that standard construction grade plywood is made out of. This has contributed to the lack of veneer availability for CDX plywood as the sawmills are attempting to optimize earnings by allocating veneer supply to the most profitable items. Moreover, the large companies and big box stores with massive buying power are the ones thriving right now. Most small independent lumber yards and building material suppliers are sitting out as the market is too volatile for them to play in. SYP plywood is still non-existent. Although import has been a consistent alternative for east coast SYP buyers, the demand has wiped out import plywood as well. Many of the larger plywood mills such as Freres, Emerald, Boise and West Fraser are pushing back lead times to Mid/Late-April (today is 02/23/21). Most mills have been going off-the-market intermittently in attempt to catch up to their order file. We are in new record highs that have never been seen before, and just like lumber, it appears these levels are here to stay for at least the next 6-12 months. 

With all that said, as real estate investors, developers and builders we can expect to be paying much higher costs on lumber and plywood for the remainder of the year. Unless there is a major shift in supply, we can anticipate the overall price levels to continue to inflate, so plan accordingly. Other building materials such as gypsum, steel and windows have also increased in price. If you're planning on doing any major renovations, a house flip, new build, etc., plan ahead and order material early. As we approach the "busy season" for the lumber industry, there will be even more supply restraints. I hope this provides some insight for those impacted by the price inflation. I will most likely update later this year.       
 

Tangentially, my insurance agent stated that this (as in rebuild costs) was the primary cause of a 9% rise in my insurance rates.
Joe

Uneducated Economist on YouTube has good content on the lumber industry as someone working at a lumber supply house and keeping up with pricing trends and demand trends. He was mentioning that loggers had no shortage of trees to cut down(at least in Oregon), but were still experiencing a slowdown in work. It seems the only choke point is with the mills themselves as you mention and not the system as a whole.

@John Lyszczyk yeah for reference, I priced my lumber package for a large garage build in Fall of 2019. We were booked out for so long it took almost a year to actually get to the project in fall of 2020, and when I did the same order it was almost exactly double, from around 5k to almost 10k. So, on my new upcoming large renovation projects I am adding several thousand to my lumber line items in anticipation of rising cost. 

@John Lyszczyk thanks for such thorough insight from an industry insider. Aside from property investing I am part owner for a general contracting company in the Northeast. This stark rise in pricing has been painful. I appreciate your outlook moving forward, which will help with determining job costs. Unfortunately, homeowners are feeling the full effects of this. We have a deck to build for a project that will cost $50k just in materials!

Originally posted by @Trevor M. :

Uneducated Economist on YouTube has good content on the lumber industry as someone working at a lumber supply house and keeping up with pricing trends and demand trends. He was mentioning that loggers had no shortage of trees to cut down(at least in Oregon), but were still experiencing a slowdown in work. It seems the only choke point is with the mills themselves as you mention and not the system as a whole.

Logging slows down in winter due to site conditions ( too wet)  and rocking miles of road is expensive.. so most logging here are summer shows.. and this has been a very wet winter..  they can log if its frozen though.. but not soaking wet.. 

 

John out here in Orygun we are able to move prices up so the real burden is on the buyers.. Not all markets you can do that.
we were looking at some starter stuff in the mid west and U just cant move prices up 10k and get your apprasials to come in.  we can move prices 25k up no problem.. in the little community I am currently building in.. I am pretty sure I was the first to raise prices I see my competitors following suit.  Now the national builders not sure what arrangements they make or if they play the futures but they seem to be lagging a little on pricing.  Although lumber is still just 10% to 15% of the project But you make great points..  I was looking at a timber cruise the other day on a parcel I was considering and the delivered domestic number 2  log ( doug fir) was 800.oo  that number was what we got for when futures were at 350 to 450 a thousand.  Cedar ( for fencing) is at 1500 to 1800  fyi.
so with futures almost double that you would think the delivered log price would be quite a bit higher.. and it not at least on that cruise.. now to be fair i have not gotten a purchase order from RSG or Stimson lately so would have to defer.. but to me there is some very huge profit taking in the middle production realm ??? at least it appears so.  I am going fishing this summer with a good Friend that owned a saw mill here in Oregon for years.. I will ask him since he is retired and sold out to big corporate I should get some inside info..  In the mean time my 25k lumber truss pac  is now 45k.

Thanks for sharing @John Lyszczyk . A couple of weeks ago I needed some PT 2x4s for a firewold holder, walked into home depot, and thought to myself "yeah, $20 should do the job here"....Yeah right! I couldn't believe the price increase we've seen.

I'm about to get started on adding a bathroom to my live in flip here in Windsor Locks, CT and although I don't want to pay the increase in materials, I also don't want to wait a year to do the job, so your post gave me the confirmation I needed to just git 'r done. 

@John Lyszczyk

Look at $DXY over the last year and it tells the story. Weak dollar, expanding 10-year yields, and commodity inflation. Gold gave the signal last summer and since then commodities have all gone up: Silver, Corn, Lumber, copper etc. in fact copper is over $4 / lb now.

This will be an ongoing situation until we see a stronger dollar.