Lumber Prices 2021: Why is Lumber So Expensive?

Two Story Home Under Construction

Lumber Prices 2021: Why is Lumber So Expensive?

The robust economy over the last several years has driven the real estate market and ultimately new home construction. In 2020 the world suddenly saw people spending more time in their living spaces than ever before with plans canceled, offices closed and lockdowns in place. As we spent more time at home, many realized they needed more space and decided to build. This is true nowhere more than the United States.

With increased motivation coupled with low interest rates, the year saw a lot of demand in the home builder industry, but there have also been unexpected complications. The main complication relates to lumber prices. The lumber supply chain saw huge disruptions, which forced lumber prices to historic highs. There isn’t one driver of these high prices, but you might call 2020 the perfect storm for this situation. Let’s break it all down.

Is There a Lumber Shortage?

When prices first spiked in September 2020, there was a shortage caused by a combination of Covid-19 restrictions, increased demand and high tariffs on Canadian lumber.

The latter was reduced in late September, causing a temporary dip in prices and a boost to supply. However, the prices shot back up at the beginning of 2021, as lumber suppliers continued to lag behind in production. Better opening of the supply from Canada isn’t likely to improve any time soon, as the Biden administration doesn’t have it on their immediate agenda.

The production issue by lumber suppliers should be better, as their business models have adapted to Covid precautions over time. However, the significant increase in demand remains difficult to meet. There also seems to be some reluctance on the part of the milling industry to negotiate their prices even a little, as their ability to meet demand remains unstable.

All of these factors worked together to produce a lumber shortage of sorts in 2020.

The Effect of High Lumber Prices on Home Builders

The most immediate effect of fluctuating lumber supply and price is the inability for home builders to offer estimates on price and time for projects. If the timing is exactly right, they may find themselves facing a bill for lumber twice what was included in an estimate. Conversely, the builder may price a new home based on high-cost lumber, which could make a potential client delay their purchase until a later date.

Another issue arises around the supply chain. Instead of having a stockpile of lumber on-hand at all times, many builders have opted to limit their stores to a 30-day supply to save money. They take a chance that when a project comes around, any needed order can be filled in a timely manner. Sometimes this approach backfires because they may find themselves paying double for their lumber, plus it can take twice the time to deliver. All of these factors cause delays in construction, as well as price increases.

Will Lumber Prices Go Down in 2021?

The short answer to this question is “eventually”. Most experts predict that the lumber market will remain volatile through spring and summer, but prices should begin to drop as production increases and demand lags later in the year. As life begins to resemble normal, demand for new homes and construction projects will decline, which allows the lumber industry to catch-up and stabilize.

Meaning for New Home Market

Those of you who still want to build a new home, even with the instability and high prices, shouldn’t wait. Interest rates are at all-time lows, and might not stay that way for much longer. In the big picture, spending more up-front to lock-in a low interest rate makes a lot of sense. The cost of lumber is only part of your overall budget and shouldn’t be the deciding factor for you. Just remember, cut your new-home builder a bit of a break as they help you navigate this uncertain time.

The experts at Columbia Home Solutions are committed to building you the best home possible in the Hudson Valley. Contact them today to start a conversation!

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