Lumber prices are rising again even as the industry steps into what is normally a seasonal lull in home construction.
Prices are climbing amid tight supplies and a pickup in homebuilding. Western Canada is seeing reduced output and the U.S. south is grappling with labor shortages. The U.S. is also expected to double duties on a common Canadian wood next month, adding to costs.
Rising prices signal that homebuyers will face elevated prices for longer. Lumber futures recently were trading around $735.70 per 1,000 board feet, which is more than double the pre-pandemic five-year average of around $356.
Wood prices have been volatile, whipsawing since the pandemic began. They touched record highs amid a Covid-19 inspired home-improvement boom, then collapsed as sawmills ramped up production and high prices stifled retail demand. Now, the market is shooting up again.
Log costs have been soaring in British Columbia, a key producer of softwood lumber used in homebuilding. Several sawmills in the Canadian province curtailed production as their log costs exceeded the sales prices.
The cost of logs in British Columbia is determined by stumpage rates, which the government adjusts each quarter. Recently, some of the rates were up fourfold from a year ago. However, sawmills were being paid prices for lumber that had plunged from those levels.
In the U.S. south, where a large amount of North America’s lumber is produced, labor issues are plaguing the mills, according to Brian Leonard, an analyst with RCM Alternatives in Chicago. Because of the supply bottlenecks, he expects prices to keep rising through the first quarter of 2022.
That’s bad news for home buyers. “We’re seeing futures prices going back up, and that will undoubtedly mean the price of retail lumber builders buy goes up,” said Jerry Howard, chief executive officer of the National Association of Home Builders.
The price surge earlier this year added as much as $40,000 to the price of the average U.S. house and forced some construction companies to stop building, according to the association.
Some factors could dampen demand and prevent prices from escalating further. Interest rates are likely to rise, and home prices and inflation are climbing.
The National Association of Home Builders wrote a letter to President Joe Biden in early October, alerting the president to the volatile lumber prices that NAHB and its members have experienced over the course of this year, and warned of continuing increases.
“When compounded by severe disruptions in the supply chain impacting all building materials and components, the housing sector and the economy cannot help but be negatively affected,” the letter read.
“Unfortunately, forecasting trends indicate these increases will continue into the near future, and news of mill curtailments are stoking fears of another massive price spike this fall and next spring.”