Over the past few months, lumber prices have skyrocketed. According to the National Association of Home Builders, prices went up by 30% between Hurricane Harvey in August 2017 and January 2018. At the time, this price was higher than any prices on record since NAHB started keeping such records in 1995. March saw lumber futures climb even higher, over $520 per 1,000 board feet, up from January’s numbers, which climbed between $420 and $460 per 1,000 board feet. With these thoughts in mind, here are some of the causes of these rising costs — and a quick look into the future concerning both lumber prices and how these prices will affect housing costs.
Why are Lumber Prices High?
There are a variety of factors coming together all at once to affect lumber prices. In a nutshell, demand has increased dramatically while supply is tightening. For starters, growth of gross domestic product in all major economic regions of the world is fueling something of a world-wide construction boom. In the U.S. alone, single family home construction increased 7% between January 2017 and January 2018.
China is also importing more lumber, increasing demand. Meanwhile, in British Columbia, supply is short and mills are making serious cutbacks because of wood-destroying beetles and wildfires that are causing widespread deforestation. On top of that, the U.S. has raised import duties on Canadian lumber, which is causing a supply shortage in the U.S. as Canada exports less lumber southward.
Then there are the rising costs of everything going into lumber production — labor, transportation, containers and so on, all costing more across the board, which drives up the cost of lumber regardless of supply or demand. The cost of a flatbed truck to haul lumber, for instance, went up 24% between January 2017 and January 2018.
Will Lumber Prices Stay High?
Experts are saying that with the current chaos in the lumber markets, prices are expected to be high through 2020. After that, costs may start to come down. However, in order for prices to come down, several things need to happen. In the U.S., lumber production will need to increase to cover the lost supply from Canada or Canadian import duties will need to come down so that Canada can export more lumber to the United States. Canada has accused the U.S. of violating international trade rules and is currently working with a NAFTA arbitration panel and the World Trade Organization to settle this dispute. Experts expect that once this issue has been settled, prices will start to come down — though the litigation could take a year or two.
How Does This Affect Housing Costs?
If you’re a builder, the rising lumber costs aren’t necessarily bad news. Of course, the higher price means that not only are housing costs going up, but mortgage costs are rising as well. According to the S&P CoreLogic Index, property values went up by 6.8% between February 2018 and February 2017 across 20 cities in the United States. This represents the biggest price jump since June 2014.
But the good news is that buyers are very willing to pay that higher price. Housing starts are up all over the country — 7% among single family homes between January 2017 and January 2018. What’s more, buyer confidence is high because buyers feel that home values won’t be dropping any time soon. It’s expected that the increased demand for homes will keep housing starts strong for the next several years, which means builders will have plenty of work despite rising costs.
Lumber prices are up, astronomically so compared to prices over the last two decades, but they are expected to come down in a year or two. Meanwhile, a high demand for new construction, particularly single-family homes, means that builders in the United States should quite easily be able to weather the volatile lumber market for the foreseeable future.