Priced a new house lately? Sought a bid for a remodeling project? Gone to the lumber yard to purchase wood? If so, the surging price of lumber was plainly evident. Fortune reported in early May that according to Random Lengths, the price of lumber had risen 280 percent since the start of the COVID (Figure 2). CNN Business reported the National Home Builders Association estimated higher lumber prices have pushed the price of an average new single-family home $35,872 higher.
There are several reasons for the unprecedented surge in lumber prices. Saw mill shutdowns last year due to health restrictions and the fear of a COVID-induced housing slump. Delayed deliveries resulting from trucking shortages. Tight global supplies of forestry products. The surging housing market spurred by low interest rates. Interest by homebound Americans in renovations and expansions of existing homes. A 20 percent tariff placed on imports of Canadian lumber in 2017 by President Trump. All have played a role in the lumber prices seen today.
High prices should entice lumber producers to produce more. But interestingly, somewhat akin to the situation in the beef sector, while there is plenty of raw timber available lumber producers are limited by processing capacity. It takes time and dollars to increase capacity, and producers are unlikely to invest in more capacity unless they can be convinced it will pay dividends in the long run.
Bloomberg reported lumber producers are beginning to invest in expanded capacity thinking demand will remain strong for the foreseeable future. Also, the tariffs were partly rolled back some by President Trump in December and home builders are encouraging President Biden to remove the remaining 9 percent tariff to boost lumber supplies. High prices also serve to ration goods. High lumber prices will dissuade people from building new houses or adding sun rooms to their existing home. Combined, the supply and demand effects will reduce prices. Predicting how long that will take, that’s another story.
Figure 2. Lumber price per thousand board feet