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

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

John LyszczykPro Member
Rental Property Investor 路 Marine City, MI 路 Member since 2016 路 145 posts 路 230 votes

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.       
 

13Reply
129 views

Most Popular Reply

Jay HinrichsBusiness Member
Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
5y
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.. 

See this reply in the discussion

41 Replies

Jump to latestLatest
  • Westchester, NY 路 Member since 2018 路 115 posts 路 52 votes
    5y
    Tangentially, my insurance agent stated that this (as in rebuild costs) was the primary cause of a 9% rise in my insurance rates.
    Joe
  • Rental Property Investor 路 Austin, TX 路 Member since 2020 路 10 posts 路 9 votes
    5y

    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.

  • Real Estate Agent 路 Cincinnati, OH 路 Member since 2015 路 474 posts 路 580 votes
    5y

    @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. 

  • New to Real Estate 路 Naugatuck, CT 路 Member since 2020 路 9 posts 路 6 votes
    5y

    @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!

  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    5y
    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.. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    5y

    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.

  • Property Manager 路 Windsor Locks, CT 路 Member since 2016 路 1k+ posts 路 1k+ votes
    5y

    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. 

  • Investor / Syndicator 路 Austin, TX 路 Member since 2015 路 366 posts 路 220 votes
    5y

    @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.

  • John LyszczykPro Member
    OP
    Rental Property Investor 路 Marine City, MI 路 Member since 2016 路 145 posts 路 230 votes
    5y
    Originally posted by @Seth Bronko:

    @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!

    Glad to have helped! Some of your suppliers would normally be engaging in what we call the "Spring Buy", which is basically an offering of discounted wood (PT, decking, untreated, etc) that the dealers take advantage of to stock up for the spring/summer. That is not happening this year. Everyone is still "hand-to-mouth" so to speak. 

  • John LyszczykPro Member
    OP
    Rental Property Investor 路 Marine City, MI 路 Member since 2016 路 145 posts 路 230 votes
    5y
    Originally posted by @Jay Hinrichs:

    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.

    It's crazy out there, Jay. It's the truss package figures that are eye opening. Price inflation has put builders in a tight spot and forcing them to pass the cost onto their customer. Considering the rising cost in building materials in general due to similar circumstances, it will be interesting to see how high home prices will go.  

  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    5y
    Originally posted by @John Lyszczyk:
    Originally posted by @Jay Hinrichs:

    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.

    It's crazy out there, Jay. It's the truss package figures that are eye opening. Price inflation has put builders in a tight spot and forcing them to pass the cost onto their customer. Considering the rising cost in building materials in general due to similar circumstances, it will be interesting to see how high home prices will go.  

    To add to the burden yesterday we got a memo from our city utl that water connection fee is going up by 2200.. so now we are at 21k for utl hook ups plus the cost to connect them.. And this community is one of the cheaper system development charges in our metro area.. In lake Oswego where I live I have a custom I am going to build  it will be a 1.2 to 1.4  3k sq ft.. and our fee's here will be around 60k plus the cost of hooking everything up.. this is a 500k  lot..  nice level 20k sq ft lot.  So in all honesty its put downward pressure as well on land owners.. if you build costs rise but the home prices dont .. you have to pay less for the dirt.. many with dirt are old timers with no debt and just will sit and wait before lower price.. thereby making the tight dirt market even tighter. there goes affordable housing right out the window of supply demand economics  :)

  • Member since 2021 路 94 posts 路 45 votes
    5y

    Thanks for the detailed break down on this @John Lyszczyk! I've talked with friends who are in the middle of some building projects, and the rise in lumber prices has been nothing short of a headache. It's helpful to read this explanation. 

  • John LyszczykPro Member
    OP
    Rental Property Investor 路 Marine City, MI 路 Member since 2016 路 145 posts 路 230 votes
    5y
    Originally posted by @Mike Krieg:

    @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.

     Interesting take. I don't think the value of Gold or the $DXY index correlates with the massive supply/demand issue of fiber-source and remanufactured wood products. There were several events that I detailed in my previous post that caused a nationwide supply shortage. 

    Your weak dollar value reference might be due to the US federal government printing 37% of all dollars made in the HISTORY of the federal reserve in just 12 months.

  • Wendy ThurstPro Member
    Nashville, TN (nashville tn) 路 Member since 2020 路 49 posts 路 28 votes
    5y
    Do you think prices will ever be reduced again?
  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    5y
    Originally posted by @Wendy Thurst:
    Do you think prices will ever be reduced again?

    we get a huge GFC type event and sure they will come back down.  

  • John LyszczykPro Member
    OP
    Rental Property Investor 路 Marine City, MI 路 Member since 2016 路 145 posts 路 230 votes
    5y
    Originally posted by @Wendy Thurst:
    Do you think prices will ever be reduced again?

    The lumber and plywood market has always experienced volatility, but never to this degree. With the levels of inflation that have occurred, it is hard to say what will happen. We could see supply levels balance out to meet demand and price plummet back to historical marks. If prices do return to normal levels, we're talking about a 60-75% reduction. From a macroeconomic standpoint, this sort of correction in a short time period would, for lack of a better term, shake things up. The more likely scenario is supply catches up to demand and pricing levels out, but we may be at a "new norm" of inflated prices. For the next decade we would see consistently higher prices than the previous decade. 

    If I had a crystal ball, I would be sitting at a high office in Wall Street lol But I don't so I'll stick to slinging lumber for now haha. Hope this helps!   

  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor 路 Sioux Falls, SD 路 Member since 2015 路 9k+ posts 路 18k+ votes
    5y

    Pricing has another component people don't talk about. This applies to all industries. Once prices increase due to shortage, natural disaster, etc. - they are slow to come down partly because there is no incentive. If you were a company selling XYZ product and you had high demand, even if your costs came back down, why would you reduce price? If every supplier is running at capacity, there is no incentive to reduce prices. In fact as an industry, they will look for prices to stay up. The only way prices drop is when one or more suppliers decide to get aggressive in pricing. That will only happen if someone has more supply than demand and or if someone looks to strategically expand market share. 

    The reality is that price increases often end up "anchoring" a new price norm. I would make no assumption that prices will come down minus a catastrophic decrease in demand.

    People mistakenly assume that price increases correlate to cost increases, but in many cases these increases are to increase margin. Price increases are often opportunistic. COVID has been the perfect opportunity for many industries to justify price increases, even when they were hardly affected by it.

  • Rental Property Investor 路 Grove City, OH 路 Member since 2018 路 93 posts 路 71 votes
    5y

    @Joe Splitrock - I agree. I think this increase in lumber/materials is due to suppliers thinking "hey lets up the price while demand is high and blame on external factors - covid/economy/inflation and the casual buyer will be none the wiser". I predict these prices will be the new norm. I have watched a few videos from the "uneducated economist" youtuber and its given me some insight about the industry I never considered. 


    Also - My Original thought... Why don't people start using lumber from abandon homes? Buying cheap abandoned homes then basically demolishing them for materials? Just by doing a quick search there are around 17 million vacant homes across the US... Detroit homes going for $1,000. No Idea how much work this would take or how feasible it is ? 

  • Mystic, CT 路 Member since 2020 路 14 posts 路 6 votes
    5y
    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.

     Uneducated Economist is the 馃悙

  • Contractor 路 Canton, GA 路 Member since 2015 路 107 posts 路 81 votes
    5y

    @Wendy Thurst

    Yes, when population starts to pull negatively and more homes are on the market than needed.

  • Dylan TanakaPro Member
    Real Estate Agent 路 Detroit, MI 路 Member since 2008 路 455 posts 路 178 votes
    5y

    Our lumber packages are up just about 50% on our new construction homes in Bruce Twp/Romeo!

  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    5y
    Originally posted by @John Lyszczyk:
    Originally posted by @Wendy Thurst:
    Do you think prices will ever be reduced again?

    The lumber and plywood market has always experienced volatility, but never to this degree. With the levels of inflation that have occurred, it is hard to say what will happen. We could see supply levels balance out to meet demand and price plummet back to historical marks. If prices do return to normal levels, we're talking about a 60-75% reduction. From a macroeconomic standpoint, this sort of correction in a short time period would, for lack of a better term, shake things up. The more likely scenario is supply catches up to demand and pricing levels out, but we may be at a "new norm" of inflated prices. For the next decade we would see consistently higher prices than the previous decade. 

    If I had a crystal ball, I would be sitting at a high office in Wall Street lol But I don't so I'll stick to slinging lumber for now haha. Hope this helps!  

    John i dont have the expertise at the finished product you do. but I have historical data on delivered log prices since I have done that for decades.. in the 80s Doug fir  ( this is all west coast ) was about 400 to 500 MBF delivered number 2 to 3 log or what we call a domestic log.. the export log was always higher priced ( also higher quality as the Japanese paid premium prices for premium logs and thats a whole nother discussion of how the Japanese build their homes.

    then things picked up and spotted owl and cost rose to about 600 in the early to mid 90s  but export from 93 to 97 sky rocked to over 1k per mbf. 

    then when things started to rise in the 2000s we got to 650 to 800 for domestic and export would stay 10 to 20% higher.

    but lumber was staying fairly constant at the market.

    now you have this uber inflation of lumber but log prices are still only at 800.

    now on the west coast we get a huge amount of lumber from British Columbia.. so Tarrifs have always been to blame for the rise on that lumber..  so someone is making the margins between delivered log and end user

  • Investor 路 Philadelphia, PA 路 Member since 2015 路 3k+ posts 路 3k+ votes
    5y

    WOOD and CUT are the big lumber ETFs.... If you're gonna pay more you might as well pay yourself :)

  • Jonathan StonePro Member
    Rental Property Investor 路 Camas, WA 路 Member since 2020 路 284 posts 路 202 votes
    5y

    @John Lyszczyk

    Although the dollar is weakening and many commodities are up, like lumber. There is also a hard push into alternatives.

    Anyone here have thoughts on alternative building materials. Or designs that reduce the use of lumber. The key to growth is usually innovation right?

  • Real Estate Broker 路 Minneapolis, MN 路 Member since 2011 路 5k+ posts 路 6k+ votes
    5y
    Originally posted by @Joe Splitrock:

    Pricing has another component people don't talk about. This applies to all industries. Once prices increase due to shortage, natural disaster, etc. - they are slow to come down partly because there is no incentive. If you were a company selling XYZ product and you had high demand, even if your costs came back down, why would you reduce price? If every supplier is running at capacity, there is no incentive to reduce prices. In fact as an industry, they will look for prices to stay up. The only way prices drop is when one or more suppliers decide to get aggressive in pricing. That will only happen if someone has more supply than demand and or if someone looks to strategically expand market share. 

    The reality is that price increases often end up "anchoring" a new price norm. I would make no assumption that prices will come down minus a catastrophic decrease in demand.

    People mistakenly assume that price increases correlate to cost increases, but in many cases these increases are to increase margin. Price increases are often opportunistic. COVID has been the perfect opportunity for many industries to justify price increases, even when they were hardly affected by it. 

    To expand upon what is perfectly written already; the mechanism by which prices would come down, market competition activities, will be incremental, that's uber important, it won't be a "oh hey, we can slash our prices 40%, ok let's do that". It will be biz E slowing down a touch and seeing some slowing in schedule so, they lower prices 1,3,5%, just enough to have a tiny edge over some others to gain some more biz to fill. Than, maybe those loosing some biz to E, touch down 3%, when possible, to get market share. 

    This is how prices will come down, and it won't be a daily discount thing, it will start like molasis speed, ultra slow, and over many months grow momentum IF, and here is the big X-factor to it all, IF they need to. If the industry as a whole stays slammed, holds to pricing, well welcome to the "new norm". 

    Remember when we were all told how great it will be to have everything in existence made in China because of how much cheaper it will all be, and then it was maybe a 10% discount, or none? Yeah, same principle. Nobody drops prices and profit margins for the fun of it, without a drive to move market average down, it won't. 

    So in summary, assume this is the new norm and if it ever goes down, consider it an early x-mas. 

Join the conversationCreate a free account to reply, vote on answers and follow this thread.