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