It’s customary to yell the warning, “Timber!” as a tree begins to fall. Today it seems appropriate to yell “Timber!” to anyone walking into a lumber yard to buy some 2X4s. According to Random Lengths, as reported in Fortune Magazine, “As of the week of March 11, the price of lumber per thousand board feet is at $1,044. That’s an all-time high, up 188% since the onset of the pandemic. The National Association of Home Builders calculates that current lumber prices are adding at least $24,000 to the price tag of a typical new single-family home.”
My guess is that the NAHB is probably under estimating that increased home cost by several thousand dollars to take a bit of the sting out of that inflated cost for those wanting to build a new home.
Here’s what I know from personal experience in Hillsboro, having just built an addition to the house on our small farm during this pandemic year. Fortunately, most of the lumber for the addition was purchased early on, but the board foot price kept going up. Still, our builder told me that if he were to build the same structure today, it would cost us at least 30 percent more in lumber. But it’s actually worse, because the cost of almost every other aspect of building is up as well from steel, to copper, to concrete, to windows, to appliances.
How can a commodity like lumber go up 188 percent in less than a year? Lance Lambert of Fortune went on to say that, “The price shock is a classic example of the supply and demand curve. On one hand supply has fallen as a result of COVID-19 restrictions hampering sawmills, while quarantining Americans pursuing home renovations or do-it-yourself projects increase the demand for timber.”
In addition to lumber mills running below capacity because of the COVID-19 effect, mortgage rates have been fantastically low, so quarantining Americans renovating homes were even further incentivized to green light their improvement projects. After all, if you’re going to be working from home, and want to distance yourself from your kids who are schooling from home, why not expand and update the living quarters?
So, what to do if you were planning on building this spring? Dare I say, “Timber!” According to Dustin Jalbert, senior economist at Fastmarkets RISI, specializing in wood prices, it will depend to some extent on immunizations and potential future pandemic surges, but “As COVID-19 cases continue to plummet, vaccination rolls out over the coming weeks and we achieve some level of herd immunity, I expect mill production to ramp up and distribution delays to start dissipating. Supply should increase in the coming months… but home building remains strong and has a pretty deep pipeline into late 2021 or even early 2022. So, don’t expect the price relief to come from construction.”
Maybe it’s time for Plan B you say, finally putting up that pole barn you always wanted? The long shadow of that same supply-demand curve lurks over steel as well. The benchmark price for hot-rolled steel set a new record this quarter at $1,080 a ton. In the past five months, the price has gone up almost 150 percent from $440 to $1,080 per ton. The same forces are at work with steel. The supply lines are tight because mills have slowed or been idled by the pandemic.
If you’re thinking about lumbering up, the bottom line is that costs have gone up dramatically. For builders, there are further problems. Delivery timelines for things like siding, appliances, and windows have made for many cumulative frustrations and delays.
It will probably be months before we can fully comprehend all the downstream effects of this damaging pandemic. But as I look into my partly cloudy crystal ball, my prediction is that pent up demand is likely to keep prices high… yes, as we build toward the future.
Bill Sims is a Hillsboro resident, retired president of the Denver Council on Foreign Relations, an author and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.
