It is likely that you have noticed "the price of lumber" making headlines as of late. In this post we're going to tell you why.
There are several known factors and many suspected (but unconfirmed) factors that have contributed to the unprecedented rise in the price of lumber from early to mid 2021.
The Numbers
From April 2020 to April 2021, the National Association of Home Builders (NAHB) reported that the “price per thousand board feet” increased by nearly 250% — from $350 to $1,200.
Prices then continued their upward trend reaching above an all-time high of $1,515 in May 2021.
Only in mid-to-late June 2021 has any easing been detected in the price of lumber.
Below are some of the main contributing factors:
Demand
Demand for lumber is at a record high. Many businesses, institutions and individuals are rebounding from the COVID-19 pandemic with new construction. Home projects, real estate, commercial expansions, and pandemic-related construction accommodations (outdoor/socially-distanced spaces etc.). Even at normal lumber production levels, this level of demand would result in shortages, which leads to our next point...
Limited Supply
When the COVID-19 pandemic hit, many sawmills cut production and reduced their labor forces in fears of a housing crash. However, rather than a crash, demand increased as many homeowners bought lumber and materials for DIY projects. Coupled with recession-induced interest rates, a housing boom developed, which we are still experiencing at the time of this post. With a significant portion of the younger population reaching their peak homebuying years, housing inventory became scarce, which sent buyers in search of new construction. Lumber mills were simply unable to keep up with this unexpected demand. There are also environmental and natural factors at play, namely British Columbia’s forest fires, beetle infestations, and the slow growth rate of spruce trees. which are making certain species of tree shorter in supply.
A Rough Decade for Lumber
During the 2008 financial crisis, the lumber industry was among the worst-hit. The disaster was centered in the housing market, and the immediate effect was a collapse in home construction and residential investment (the primary consumers of wood, along with paper producers). As a result of that dramatic reduction in demand, many sawmills shuttered or significantly reduced their staff. In the years that followed, mills remained very hesitant to hire workers during periods of increase demand due to their skepticism that the demand would be sustained. Following the worst of the COVID-19 pandemic, when demand for lumber was increasing, lumber mills resisted hiring until it was too late to avoid being overwhelmed.
Labor Shortage
Related to the point points above, the COVID-19 pandemic resulted in mandatory and voluntary staffing reductions and work-from-home policies. On top of the pandemic restrictions, the lumber industry had contracted over the prior decade, meaning fewer skilled lumber laborers. And with most mills being located in relatively remote and rural areas, they are far from the typical population centers where the labor workforces are more plentiful.