Lumber prices in the United States hit an all-time high in May, topping $1,500 per thousand board feet (MBF) based on the Fastmarkets Random Lengths Composite Price. That is more than four times the prices recorded last spring.
These soaring prices not only create bidding wars and tighter margins for professional builders. They also mean higher prices at local home improvement stores for your average US homeowner.
So, what’s behind the increase? One element identified by Fastmarkets senior economist Dustin Jalbert is the DIY and home-renovation craze itself.
Demand for consumer wood products rose significantly over the course of the Covid-19 pandemic. Home-renovation spending increased by 7.3% in 2021 after having grown by 5.3% in 2020. As bored homeowners sat quarantined in their homes, the itch for home renovations spiked. Decking, studs, shorter-length dimension lumber, appearance-grade boards and fencing became popular purchases.
Home Depot reported a 32.7% increase in sales in the first quarter of 2021 compared with the same period last year. Lowe’s reported a 24% increase in sales in the same comparison.
Extra income and sustained employment
Despite a recession and higher unemployment in the US during the pandemic, many homeowners were largely unaffected. Since homeowners in the US held positions that were less impacted by layoffs, their income was stable.
Stimulus checks from the Cares Act and American Rescue Plan fueled spending on the home. Homebound owners turned to DIY projects with the increased discretionary income and free time on their hands due to canceled vacations and empty social calendars. Soaring home equity and the stock market paired with the stimulus checks kept much of the economy afloat.
So why did homeowners decide to direct their funds to home renovation? The first factor was historically low housing inventory limiting their buying options, causing existing homeowners to build onto their homes to outfit their needs rather than move. The second consideration homeowners made was the need for functional work and school spaces due to stay-at-home orders and the emergence of hybrid work trends.
Will lumber demand remain high even while the DIY boom loses steam?
Lumber prices dropped by 20% week on week on Tuesday June 15, which suggests the DIY boom might be losing some urgency. Are builders and homeowners breathing a sigh of relief? Not just yet.
“Inventory correction is going to take time to sort out: Mills are not only producing to meet existing demand from construction and manufacturing, but also to fill that inventory hole that we dug in 2020 as demand outpaced production,” Jalbert was quoted as saying in a recent Fortune article.
Lumber demand is not expected to die down anytime soon. In the near term, home-renovation projects are expected to pivot to more expensive, contractor-intensive home improvements. Due to tight supply, many contractors are indicating home-remodeling wait times of between six and 18 months, according to the New Hampshire Union Leader.
New home construction will also remain a big factor. New construction rose by 8% in 2020, its highest level since 2006. Because there is a lack of inventory for new homeowners to enter the market, new home construction remains elevated, adding to demand.
While some easing in the market has occurred in recent weeks, Fastmarkets reports construction-sector demand for Southern Pine treated lumber has remained high by historical standards. Contractor yards have needed constant replenishment to keep job sites supplied. These wood prices can cause swelling home construction costs and new home build price increases.
Among many other considerations, Fastmarkets economists are watching home starts and building permits as key indicators for future lumber demand.
Prepare for future volatility
Unexpected shocks in the industry can have a deep impact on price, sometimes in unexpected ways. Pandemic stay-at-home orders led consumer demand to quickly shift and fed into a DIY boom.
Industry players are operating in the most volatile market environment the industry has seen in several decades. It is more important than ever to have expertise and visibility into what is driving market conditions. An objective view will be invaluable if you are managing commodity price risk as a buyer or trying to effectively assess market conditions as a producer.
To learn more about the other key drivers behind wood product prices, read our report: Lumber: Unprecedented Volatility, where we outline the current six factors behind the skyrocketing market, including:
- A housing market on fire
- The DIY and renovation boom
- Soaring wood product demand
- Lagging industry supply
- Supply chain disarray
- Long-term capacity restraints
