Expect Lumber Prices to Remain Volatile

Last year was a volatile year for the lumber market, which faced both supply and demand issues.

Some lumber mills, particularly in Canada, experienced construction struggles. As that was happening, demand was soaring for lumber from multiple users, including retail locations building temporary COVID-19 protection barriers, do-it-yourselfers across the country, and new residential projects, according to JLL’s construction outlook for the first half of 2021.

Then lumber costs fell as supply came back online and market conditions normalized. But then, in December in January, prices again jumped.

Data from the National Association of Home Builders and Random Lengths showed that the price of lumber hit a record high of $1,000 last week, adding thousands of dollars to the cost of new homes. Prices began rising again in December following a three-month lull that began in September 2020, a trend that’s diverged from initial predictions that construction costs would decrease during the pandemic.

With such wild swings, making forecasts is difficult. JLL says that accuracy depends entirely on the starting date of any forecast timeframe, though lumber prices will again be the most volatile of all construction materials in 2021.

Overall, lumber prices will be higher in 2021 than in 2020. Still, average lumber prices in 2021 should be below the extreme peaks recorded in August 2020 and December 2020. However, JLL says temporary peak prices may reach or surpass those spikes.

The NAHB is advocating for political action to curb labor prices.

In a statement last week, NAHB Chairman Chuck Fowke—who’s also a custom home builder in Tampa—urged President Biden and Congress to push domestic lumber producers to ramp up production and end tariffs on Canadian lumber shipments into the US, which NAHB maintains are creating and exacerbating “unprecedented” price volatility in the lumber market.

“Clearly, these price increases are unsustainable, particularly in light of a continued housing affordability crisis,” said Fowke. “Given this ongoing period of high demand, the Commerce Department should be investigating why output from lumber producers and lumber mills are at such low levels.”

The NAHB estimates that increased lumber costs increased the price of new single-family homes by $14,000 and apartment prices by $5,000.

“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” said NAHB Chief Economist Robert Dietz. “A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability.”