Why the lumber industry faces conflicts
By Aurielle Weiss
Volatility; the lumber industry’s current buzzword.
Many economists and industry professionals have been using this term to describe lumber and wood products’ recent and steady price spikes and shortages. As inflation continues rising, lumber volatility recorded a 75-year high, according to National Mortgage News.
A report by the National Association of Homebuilder (NAHB) revealed the average 24-month measure of softwood-lumber price volatility has been dramatically higher since January 2020 at 12%, compared to just 0.3% previously.
The report also noted building materials prices increased 15.9% in 2021 and have risen 18.6% since December 2020. Since declining 1.8% between July and August 2021, the index has climbed 4.5%.
“Builders can expect ongoing price volatility for wood products, such as structural lumber and OSB, given the challenges associated with the nation’s supply chains and the ongoing impacts of the lumber tariffs,” Robert Dietz, Chief Economist for NAHB said.
Today, the price of lumber stands at over $1,250 per thousand board feet. Dietz predicts that pricing will remain near or slightly above $1,000 per thousand board feet.
A few reasons; supply-chain disruptions, tariffs, labor shortages and record high demand for new homes/remodels. Every disruption reverberated in the price of lumber, continues to drive price and volatility higher.
The Supply Situation
Price spikes are directly correlated to the ongoing supply chain disruption for a number of reasons. For starters, the supply chain shortages are being perpetuated by the trucker shortages.
“With the continued high demand for products, the industry is struggling to catch up.” – Jon Showalter, Chief Operating Officer for Homes by Dickerson
Yahoo! reported that the U.S. is short about 80,000 truck drivers. Some say the shortages are due to corporations profiting from the massive wave of demand while the truckers, those who are in the trenches, aren’t. Wages and working conditions have yet to increase with the record profits companies are reporting.
According to the article in Yahoo!, U.S. Executive Director Tony Carrk claimed, “big trucking companies here are charging higher prices, which then get passed on to consumers. But they’re using the higher prices that they’re getting not to improve conditions here, but to also do more corporate buybacks and to increase profits.”
In addition to high demand and supply constraints, many experts also attribute the crisis to the weather. Jon Showalter, Chief Operating Officer for Homes by Dickerson, claims the Texas freeze during the winter of 2021 took out several resin plants.
“This created a resin shortage which in turn made it difficult to manufacture OSB and plywood panels,” said Showalter. “All of these factors have helped to create a strain on the lumber industry. With the continued high demand for products, the industry is struggling to catch up.”
Another cause attributed to the price spikes are the tariffs set forth by our government. The U.S. deeply relies on Canadian lumber as we import roughly $4.5 billion worth of softwood lumber.
As Canada has seen a decline in lumber supply, this only boosts the crisis. Add to that the tariffs, and the industry is at an impasse.
Because of the ongoing trade war and their decline in supply, the NAHB reports that these price spikes have added about $19,000 to the cost of a new home. The U.S must find a way to alleviate these regulations as demand is staying strong.
“NAHB continues to meet with White House, Treasury and Commerce Department officials to urge increased domestic production and a new softwood lumber agreement with the Canadian government,” Dietz said.
Strong job growth and affordable rates have made for a frenzied market. And despite the price spikes and shortages, the demand for housing, albeit lumber, remains strong.
These past two years, housing prices have seen records highs as well as extremely low mortgage rates. The industry has been running at a much faster pace based on demand. Some economists have anticipated this lumber and labor crisis before the pandemic.
As families were doing life in the home, remodels became inevitable. These factors caused demand for lumber and other materials to drastically increase.
“Lumber is a commodity tied to its use in housing and remodeling,” Matthew Saunders, Vice President of Building Products at John Burns Real Estate Consulting said. “Elevated lumber prices have clear consequences; for example, worsening affordability for prospective home buyers and escalating remodeling costs.”
Experts predict these obstacles will remain well into next year. However, as the Feds start to increase rates, demand will slow, hopefully relieving the industry of their hardships.
Aurielle Weiss is the Editor of Builder and Developer Magazine. She may be reached at [email protected].