To say the price of lumber has been hard to predict is nothing short of an understatement. After a consistent run of the Random length Index composite price staying between $350-450 per thousand board feet in 2019, the construction industry experienced a roller coaster ride trying to navigate the twists, turns, and sudden price spikes caused by the unforeseen impact of a global pandemic which in turn threw a wrench in the supply and demand model. The chart below demonstrates the extent with which prices fluctuated between the start of the economic shutdown in March and the end of 2020.
We started 2020 with a lower than average lumber supply, which caused prices to be up year-over-year. But during the economic shutdown in March which shuttered much of the construction industry, lumber mills and other lumber supplies found themselves with a surplus which caused prices to drop. Fast forward to April, when residential construction resumed after being deemed essential. Demand for lumber rose rapidly, but due to new COVID restrictions lumber mills were limited to personnel within the mills which hampered production. From there, a number of factors came into play which created the unprecedented fluctuations.
With an uncertain economy and many fearing a looming recession, the Federal Reserve dropped interest rates. The steep decline in rates over the summer benefited those seeking home mortgages and construction financing, which in turn drove up the demand for lumber. As the demand climbed, the prices followed. The price of lumber peaked to $955 per 1000 BF in September, which forced the market to stop buying and the price pendulum to swing in the other direction falling to $550 per 1000 BF. The drop prompted buyers to restock depleting inventories resulting in the pent-up demand, driving the prices back up to over $900 per 1000 BF.
DIYers Got Busy
During the pandemic home projects surged. With big box stores and independently owned lumber supply stores deemed essential, do-it-yourself home projects soared. This unexpected trend increased the demand for lumber, which in turn put a severe dent in the nation’s lumber inventory. As the supply dwindled, the price inched up.
Price of Canadian Lumber
The cost of 1000 BF of Western Canadian lumber, which American builders use in large quantities, was up about 40% in 2020. Tariffs imposed during the Trump administration to even the playing field for American lumber producers, coupled with recent rail transportation slowdowns and tree disease, played a role in the increase.
So, What’s Next?
As we move through 2021, the expectation is that prices will land somewhere between $350 and $950 per 1000 BF, based on the futures report. However, the framing industry expects prices to land between $650-$750, and remain consistent through October 2021.
What this means for general contractors/construction managers as they develop budgets for projects in the pipeline for 2021 & 2022 is the need to anticipate a 30% increase from prior framing budgets for similar projects. In comparison to 2019, this equates to an approximate $5 per sq ft increase for the framing package.
For more insight on the lumber market in 2021 and how General Contractors and Estimators can better prepare for the unknowns, contact Elmer Zook at Elmer@QualityBuildings.com