July 30, 2021

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What’s Behind the Surge in Lumber Prices?

In a recent post on the National Association of Home Builder’s (NAHB) Eye on Housing blog, chief economist Paul Emrath said that softwood is rising Timber prices have added $ 35,872 at the price of an average new family homeand $ 12,966 the market value of the average new apartment building.

The price increases affect all softwoods used for structural frames, cladding, floors and substrates, interior wall and ceiling cladding, closets, doors, windows, roofs, siding, soffits and cladding, and exterior features such as garages, porches, decks, railings. Fences and landscape walls. Products don’t just include lumber, plywood, OSB, particulate and fibreboard, shakes and shingles.

Emrath quotes prices from the data tracker Random lengths Through April 17, 2020, the total cost for a contractor for all of the sawn timber and manufactured sawn timber products described above was $ 16,927 for the products in an average single-family home and $ 5,940 for the products in an average multi-family home. By April 23, 2021, the fully incremental cost for the softwood products of an average single family home has increased to $ 48,136 and for the products of an average apartment building to $ 17,220. These estimates mean that single-family and multi-family manufacturers saw the cost of sawn timber increased by 184 percent and 190 percent, respectively, last year and last year This equates to a monthly rent increase of $ 119 for a new apartment.

According to Emrath, the increase in the average price of new homes has displaced more than 5.5 million U.S. households from the market, which means that those households may, but not, qualify for a mortgage to buy the average new home before the price hike after that.

Wells Fargo is trying to explain these increases and the bottom line is it won’t improve anytime soon. The company’s weekly real estate and housing commentary said the prices of wood futures contracts for delivery in May were $ 1,645 per 1,000 board feet, up about 60 percent from the previous month and 374 percent last year. This is the fastest increase in lumber prices since the post-WWII real estate boom. Today’s home starts, however, are far from historical levels and reporting locations Much of the blame lies in a large imbalance between supply and demand caused by the pandemic.

At the beginning of the pandemic, sawmills ceased or significantly reduced operations as states and provinces imposed operating restrictions and social distancing mandates. However, the demand did not behave accordingly. Inspired by the new lifestyle of the pandemic of working and studying at home, home sales and remodeling increased. More and more people were moving to the suburbs and fast-growing metro areas in the south and mountain west, and with few existing homes for sale, potential buyers turned to the new home market.

Housing construction continued in many places, in others it was only shut down for a short time and emerged largely unscathed from the locks. However, the timber industry has been slow to reopen, particularly in the Pacific Northwest and Canada.

The US forest industry was already inadequate before the pandemicThis leads to an increasing dependence on imports. Episodic spikes in COVID and ongoing vaccination problems have slowed production in Central Europe, while the dollar’s recent weakness against the euro and Canadian dollar also contributed to price increases. The import prices for wood product manufacturers rose by 80 percent in the past year.

Wells Fargo says the near term future is bleak. While some manufacturing capacity is back online, producers are still hampered by COVID operating restrictions and struggling to recruit workers. A lack of truck drivers and higher diesel fuel prices make it less profitable for wood owners to ship logs to the fewer number of operational sawmills.

Canada, which has long been a major US supplier, has had its own delivery problems. In the past decade, the mountain pine beetle has destroyed an estimated 15 years of wood supplies in British Columbia, Alberta and the Pacific Northwest. Initially, the infestation held back timber prices as loggers stopped to clear affected trees as quickly as possible. This strategy only worked for a few years, and the longer dead trees sat, the less suitable they were for sawn timber. In 2017 and 2018, the region was hit by massive forest fires. do the worst damage to areas not yet affected by beetle infestation. It did so before COVID-related milling restrictions added to the challenges. Production has increased recently and Canadian timber imports have increased. The US Department of Commerce cut tariffs on Canadian timber from 20 percent in December to 9 percent.

The dwindling wood stocks have led to delays, increased costs and made project budgeting even more uncertain. Wells Fargo said the $ 36,000 additional cost mentioned by NAHB was calculated before the recent price hike. “Uncertainty about where wood prices are going is causing home builders to restrict sales in new shared apartments. Housing developers are also delaying projects and looking for alternative materials,” the report said.

The Company predicts that the imbalance between supply and demand will eventually resolve itself As the operating restrictions are relaxed, the supply chains normalize and the mills are fully reopened. However, increasing production to pre-pandemic levels may not be enough. Many sawmills closed after the apartment breakdown in 2008, and fewer new mills have opened in the past decade as housing construction suffered from a weak recovery. In addition, the vast forest areas of the Pacific Northwest have seen massive forest fires recently. Overall, Wells Fargo said, lumber prices are unlikely to return to pre-pandemic levels this year.

The complete elimination of tariffs on Canadian coniferous imports could bring additional relief, but the massive timber losses from beetle infestations and forest fires will take decades to be replaced, and mill operators have shifted their focus to the southern United States.

Wells Fargo’s report concludes, “The unprecedented rise in lumber prices poses a huge challenge to the construction industry. Alongside rising lumber costs, builders are facing rising prices for many other materials such as copper, steel, appliances and cabinets. The supply bottlenecks should be addressed Slightly decrease later this year as COVID risks continue to decline and more sawmills reopen in the Pacific Northwest. Imports from Central Europe and Scandinavia help make up some of the deficit, but a weaker dollar makes those imports a quick fix However, supply problems for the industry due to the construction of new sawmills are unlikely, as building a new plant is a capital-intensive process that often takes years. “