What in April looked like the beginning of a point-of-no-return price increase on lumber— up 300% in price per thousand board feet— has finally come back down to pre-pandemic levels. With the fall in lumber prices, the home owners who decided to pause their renovation, or put their new build on hold in the spring, can get back to their building plans. And they can do so minus the additional tens of thousands of dollars that the increased lumber costs would have meant a mere 6 months ago.
Perhaps obviously, the pandemic can be blamed for the causes of the lumber boom. When the nation went into— and then came out of— lock-down in the spring of 2020, there was a massive increase in people not only staying and working at home to avoid infection. That increased time at home led people to want to renovate their homes to include or improve their home office or other workspace. Being at home also inspired countless people to take on DIY projects that had never been a priority before.
With so many people wanting to build or renovate, the demand for lumber skyrocketed. The initial increase in prices led many to pre order lumber for projects, which locked in the price for those under contract, but further drained the market of available boards, leading to even higher prices.
Some have tried to explain the lumber shortage and price increase in terms of underinvestment, or recession-time behaviors on the part of the mills, including cutting back production and shutting down particular mills in anticipation of decreased demand. However, the truth is different: lumber mills— like all workplaces which require in-person work— had to make changes in order to protect their workers from illness. Those adjustments took time, and did result in fewer workers in the mills, but not due to planned decreased production, but to reduce the likelihood of virus transmission.
Because of the high price of lumber, criminal behavior surrounding it increased. Reports of lumber theft from build sites increased, and police departments around the country warned builders not to buy lumber through Craigslist, as it could have been stolen.
Now, as Covid-19 travel and work restrictions have been relaxed, people are once again out of the house and not doing home projects, contributing to decreased lumber demand, and falling prices. Prices are also falling as the supply chain backlogs resolve, with lumber ordered weeks ago finally arriving at its destination. As the prices come back down, some retailers are being forced to sell their inventory at a loss.
The return of pre-pandemic prices is good news for the builder. While it might take a short time to clear out the more expensive inventory, builders are able to readjust their own prices. Mills are back to working at capacity, shipping delays are becoming more rare, and the desperation for wood on the part of opportunists means that lumber is less likely to be lifted from work sites. Cheaper lumber prices are giving more confidence to those homeowners who have been on the fence about whether or not to contract construction projects.
While there are never any guarantees that lumber prices will stay at the pre-pandemic levels we enjoyed before (who could have predicted the pandemic and its effects?) it’s reasonable to guess that the roller coaster ride of lumber prices is over. And builders can get back to business as usual.
To learn more about construction margin vs. markup, we put together this easy-to-follow infographic how to calculate margin and markup the easy way.
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