Lumber Prices Hit Two-Year High in July
The ripple effects of the coronavirus are still being felt across the industry.
Lumber prices reached their highest mark in two years last week as the Random Lengths Framing Composite Price hit $523 per 1,000 board feet, a 50 percent increase since April 2020. According to the National Association of Home Builders, prices had not risen above the $500 mark since July 2018.
The reasons for this rapid increase stems from the impact of COVID-19 on the lumber supply chain. When the coronavirus pandemic slowed construction activity across the country earlier this year (and shut it down completely in some states), demand for lumber dropped significantly. Those lumber mills not already closed by stay-at-home orders slowed or ceased production entirely, anticipating a lengthy slump.
“Uncertainty significantly disrupted the perception of future demand and the consumption of lumber,” Greg Kuta, president of lumber broker Westline Capital Strategies, told MarketWatch.com.
Surprisingly, demand for lumber suddenly rebounded. Two factors contributed. First, during the initial stages of social distancing, stuck-at-home DIYers began buying construction materials and tackling projects themselves. Second, the housing industry bounced back much quicker than anticipated, and new home building resumed.
“The housing metrics coming out of the first wave of the virus show an insatiable need for housing and have exposed the major issues that existed pre-COVID that still exist today — a shortage of existing-home inventory, a finite housing labor pool to actually build new homes, and a shortage of entry-level homes to satisfy the entry-level home buyer,” says Kuta.
Now lumber mills are playing catch-up, with prices spiking accordingly. It will likely take some time before mills increase their output to match these new levels of demand and end the lumber shortage.
“Stopping and then restarting production, similar to flipping a light switch on/off, doesn’t work in the real world of sawmill production,” Kuta says.