Hello All,
I thought this would be a good time to write a follow up post regarding the current state of rising lumber costs and the supply vs. demand issues the industry is experiencing. Below are a couple graphs that will give you visual context as to what is happening in the market right now. These figures are based on Per Thousand Board Feet and reflect historical composite pricing data.
In regards to Lumber, we have once again entered new record highs as of recent and the pricing trend is showing no signs of slowing. Back in Sept/Oct 2020, most industry experts were anticipating some sort of correction around the beginning of 2021. That did not happen. In fact, quite the opposite occurred. SYP and SPF sawmills across the country still have not been able to keep pace with the growing demand. Inland species along with Hem-Fir and Doug-Fir are also in tight supply. Many economists and lumber traders are saying these price levels are here to stay for the next 6-12 months. In my last post, I noted how home builders and commercial contractors were experiencing sticker shock. Obviously, that is still happening today and many are now losing money on awarded projects that have rising material not yet procured. Unfortunately, these pricing levels are not going away.
Plywood is also extremely tight on supply with a constant growth in demand. There is also an increase in demand for LVL products that use the same veneers that standard construction grade plywood is made out of. This has contributed to the lack of veneer availability for CDX plywood as the sawmills are attempting to optimize earnings by allocating veneer supply to the most profitable items. Moreover, the large companies and big box stores with massive buying power are the ones thriving right now. Most small independent lumber yards and building material suppliers are sitting out as the market is too volatile for them to play in. SYP plywood is still non-existent. Although import has been a consistent alternative for east coast SYP buyers, the demand has wiped out import plywood as well. Many of the larger plywood mills such as Freres, Emerald, Boise and West Fraser are pushing back lead times to Mid/Late-April (today is 02/23/21). Most mills have been going off-the-market intermittently in attempt to catch up to their order file. We are in new record highs that have never been seen before, and just like lumber, it appears these levels are here to stay for at least the next 6-12 months.
With all that said, as real estate investors, developers and builders we can expect to be paying much higher costs on lumber and plywood for the remainder of the year. Unless there is a major shift in supply, we can anticipate the overall price levels to continue to inflate, so plan accordingly. Other building materials such as gypsum, steel and windows have also increased in price. If you're planning on doing any major renovations, a house flip, new build, etc., plan ahead and order material early. As we approach the "busy season" for the lumber industry, there will be even more supply restraints. I hope this provides some insight for those impacted by the price inflation. I will most likely update later this year.
@John Lyszczyk - Thank you for this! I'm a small General Contractor up here in Minnesota and have definitely felt the price increases. It's hard to say how people are reacting to it because it doesn't seem to be affecting our project requests. I mean we're booking out next fall already. At some point, things will, in fact, become too expensive and we'll be the first to feel that, unfortunately. I can only pray for a correction here soon.
Have you (or anyone) noticed a jump for more premium products as a result? I'm adding on to my own home currently - we bought my wife's great-grandmothers house (who passed away back in 2011) at the beginning of 2020 and because it had to go through probate to be sold, we ended up finally closing on it in late September with a construction loan on it, effectively handcuffing us to these insane prices, while budgeting for the prices that were current in March of 2020. So as I look to buy framing lumber I've considered making the slight price jump to the LP WeatherLogic being that it's essentially the same price for OSB up here but definitely a better product. Not sure if the demand has hit it yet and will cause a run on it soon or if most people still are trying to save a few bucks anywhere they can. Just curious as to what you may be seeing at your level of the supply chain.
Again, thanks for this awesome post and have a great day!
Justin
Hey Justin,
Looks like the LP Weatherlogic is made as a water resistant OSB Struct 1 sheathing. The cost of standard OSB has increased along with regular CDX plywood. Both are the most commonly used in the industry. "Struct 1" however is a stronger and more durable panel. It has better strength design factors than regular CDX (rated) sheathing or OSB. It's a specialty product that typically takes longer to make because of the design requirements for cross panel strength and stiffness properties.With that said, I'm sure this would still be affected by the supply/demand issues as it is tied to the availability of OSB Struct 1. Check on the lead time for it. I think you're decision to pay a little more for the better product is wise, but you may have to wait. Fingers crossed they may have some in stock!
Fabulous thread and incredibly insightful. Thank you for sharing. One question remains that I only noticed 1 person address--is there something else we can use/find/develop to replace lumber? Maybe not in its entirety, for the whole project, but perhaps use a combination of materials that would otherwise not be considered but can/should now be revisited due to the current price gouging? My fiance/biz partner is a GC and I asked him this same question. Waiting to see what he comes up with. :) In the meantime I thought you might have some insight into alternatives that we (the public) are not yet aware of. Located in Chicago IL, if that makes a difference. Thanks!
Jennie Berger
Property People
That's a tough question. Considering the five different types of construction include wood, steel and concrete as major components, I would say we are bound to these building components generally speaking. Lumber sales increase slightly when the cost of steel is high and vice versa. Typical for any commodity. When steel is up, it may be more cost effective to build with wood studs. When lumber is high, it may be more cost effective to build with steel studs.
I think we are going to see major developments in manufacturing that will speed up the process of how lumber is produced. As I mentioned earlier, the owner of our company just built a state-of-the-art sawmill that generates 300MM BF per year. This type of productivity has prompted him to build a second sawmill exactly like the original. It has also prompted several other much larger players to copy his sawmill build. The innovation is coming.
Moreover, I think there will also be more automation on the home building side selling direct to home buyers. Check out this company -> https://katerra.com/ They are a leader in building automation. This company is responding to the demand by building an entire house, office, apartment complex, etc. offsite and having it delivered to be assembled like Legos haha. It's pretty cool. Definitely something we are going to see more of.
To answer your question, I don't think we will necessarily have a substitute for wood, but there are developments in place to increase supply and drive costs down. The trend for wood construction is on the rise. A recent report on the North American mass timber market projects that the number of mass timber buildings could double every two years. By 2034, there would be new demand for 12.9 billion board feet of lumber! There are currently over 500 mass timber buildings under construction or planned to be built. Pretty crazy!
@John Lyszczyk
As much as I would like to blame COVID and high demand for the rising prices.
The price of materials has sky rocketed due to poor policies by the previous administration.
Tariffs are not “free market” friendly and have caused materials to sky rocket.
Now instead of having to compete with other companies.
US material companies are now monopolies and charge what they want.
Low inventory = high prices
The difference in this situation is these companies are trying to make a quick buck with and drain builders & investors dry.
IMO.
Hey Jeffery,
I'd like to start by saying I am not a Trump supporter and I am only speaking to what I know and that is the lumber/plywood industry. I cannot elaborate on the rising cost of other building materials in detail like I can with lumber and plywood.
With that said, the lumber tariffs were imposed back in 2017 at 20-24% on all softwood lumber products imported from Canada. As you explained, this is in no way "free market" friendly, and they have without a doubt increased prices on Canadian lumber. However, not to the extreme that the "supply vs demand" dynamic has created. In 2018, we experienced historical volatility due to two hurricanes in the south and massive wildfires in the north. Prices spiked due to supply vs demand. In 2019, we experienced an extremely flat market without hardly any volatility as supply was abundant. Prices were low and so were profit margins.
Fast forward to present day, since March/April of 2020 the lumber prices have inflated beyond historical levels (beyond 2018 record levels). Composite average pricing is double or even triple to pre-COVID pricing. There has been a very real lack of supply and steady demand that stemmed from the events relating to the COVID pandemic (plandemic). To say "tariffs" are a direct result of our current market conditions would be false. The US Commerce department reduced the tariff from 20% to 9% as of December 1st, 2020. This reduction is good step forward, but it hasn't done anything to fix the supply/demand issue. In fact, I'm looking at Random Lengths (market resource) and lumber jumped another $30/m (average of items) again today.
I do agree there is blatant price gouging. People inventories are still turning at all levels of the supply chain. Are sawmills jacking prices right now? Yes. Are GCs and distributors pissed about it. Yes. That is definitely a reality. I cannot speak for other industries and the effects of tariffs imposed on those goods. I understand Trump hit Canada pretty hard with tariffs on multiple goods and I'm sure those prices rose as a result. We are in interesting times...
Hey Matt,
I'm curious about your labor shortage comment. We are experiencing labor struggles in the lumber industry as well. COVID still seems to be having an effect on treating manufacturers and sawmills.
My question(s) for you as a GC, what do you think is the reason for the labor shortage? Are younger generations disinterested in the trades?
That is sad, but reaffirms what I've been hearing from others. Younger generations want to be "content creators" or a "Youtuber" on the internet these days. Swinging a hammer is not glamorous enough apparently. Makes me wonder how all these homes are going to get built lol. The trades are going to be in an interesting position as time moves on.
Hey Matt,
I'm curious about your labor shortage comment. We are experiencing labor struggles in the lumber industry as well. COVID still seems to be having an effect on treating manufacturers and sawmills.
My question(s) for you as a GC, what do you think is the reason for the labor shortage? Are younger generations disinterested in the trades?
I'm late to this post it looks like.
@John Lyszczyk I picked the perfect time to build a storage shed lol.
I'm a developer myself and it's painful how expensive wood is and how hard it is to come by.
Something that no one is talking about though......at HD 2x4x8s are shorter now!!!!! I didn't notice this until I started building my storage shed at home and it fit into the back of my SUV way easier than it should have. Got home and measured and I mean I felt cheated! But such is the market right now!
I'm sorry to hear that, man. I've had a mill cut a few bundles of studs short for a project I was awarded. It's a rare occurrence, but it does happen from time to time.
This too shall pass! lol
@John Lyszczyk my husband was just telling me about this a few days ago...that wood prices have increased. Question, does your company buy wood from individuals who are clearing wooded lots...I always wondered how that worked?
Hey Jaquetta,
Most of the time our company is harvesting trees from land that we own, commercial lands and various public lands. We focus on procuring two primary species of lumber: SPF and SYP. These are commonly used species in construction here in the Midwest as they are the easiest to acquire. My company has a team of foresters who's primary job is to find quality wood for our sawmills. The actual logging is typically contracted out.
However, there are logging companies that will pay a land owner for their trees. I hunt a 150 acre piece of land and the owner is having a logging company come in and harvest 243 oak trees. Oak is a widely used and will yield the most when the trees are mature.
@John Lyszczyk (thunderous round of applause) Really that was a fantastic summary and synapsis.
Going a step further on that, as was touched on margins have grown by mind-boggling head-spinning factors that everyone in the trades would have said is absolutely impossible just 18 months ago. Aside from all the logistical and mathematical issues with supply/demand cycle of all this, there is now a new component, PROFIT.
For those not in the know, owning and running a lumber mill or lumber dealer has not historically been the kind of profit generation business one may think, yacht's and private jet's do not apply, lol. BUT now, these companies are enjoying profit margins only available in dreams previously, and for an extended duration. Events happen, shortages occur, enhanced margins to compensate, but these are limited "spike" events, this today is a system wide complete reset, for most part. That extended duration of a new enhanced math of profit ratios, well fact is it becomes a real nice cozy place to be that a company can get rather comfortable with.
Which leads to the next question, just how incentivized will an entire industry be to chop their "new norm" profit margins in half? I truly see this as a "new norm" in the truest economic sense, which means under a free market system 1) it will require a time of resource supply coming amply available 2) new servicers enter of existing servicers in a fight for market share make an incremental discount on prevailing margins, where ample margins exist 3) time, lot's of time for this cycle to slowly incrementally play out until prices come down to a "market" sustained rate that margins don't have that "play" to cut additionally, and we achieve equilibrium.
I hear far too many talk about this price event expecting prices to drop as suddenly and dramatically as they rose, that is simply not how the economics of it all works, it will be a long slow slope back down just how the 08/09 housing collapse was a sudden walk off a cliff, and a long slow walk up a hill, same market factors simply in reverse.
The big builders who have internalized all operations, they are a-ok in this as they have power to simply adjust unit pricing as input costs adjust, not to mention considerable purchasing power not just in dollars but network and, very literally, power. It's the spec. builders who are in trouble with this, and the renovators who sell via bids and float the variables of hard-cost inputs. As a former owner of Renovation firms and material's distribution, I have spoken to several still in the trades and it's a blood-bath to put it gently, and all are struggling with how to mitigate this issue. It's not as simple as just telling clients they must absorb these variables, telling clients the price for _____ is..... well it will be somewhere between $20k and $40k, probably, maybe, unless more price spikes, it could hit $50k, but hopefully no more than $60k, and the materials will be in..... eventually........
It's rough out there, and I have yet to see 1 Twitter or anything of a contractor or carpenter getting a $100 thank you tip, maybe if they stopped being trades professionals and carry food for a living, but alas they only use countless years of skills building and thousands invested in tools to construct peoples homes.
Hey James,
The owner of our privately held company has owned a yacht and has had part ownership of a private jet for several years, which I've had the pleasure of flying in. I know you didn't know that, but now you do. He's used his "profits" to not only acquire those luxuries, but to also duplicate an 87 million dollar SYP sawmill that generates 300MMBF in twelve months. Why? Because it pays for itself in 12 months. Building will start next year.
With that said, the scramble to meet demand and grab market share has already begun. His new state-of-the-art sawmill was the first of its kind, which has prompted larger players to follow suite and build more mills of their own EXACTLY the same way our owner built his. There is a ton of innovation happening in the lumber industry and other related industries, which will help balance things out so to speak.
@John Lyszczyk
John,
Where do you currently see lumber prices at and where would you say prices are headed?
I’ve talked to builders that are saying they’re seeing prices coming back down but a buddy of mine works in management at 84 lumber and he’s saying they’re only rising and suspects lumber will continue to keep rising in price... I’m located in NC
What are your thoughts?
Thanks
Hey Cody,
We are in some very interesting times in the building materials industry. The summary I made was back in Sept/Oct when prices were at an all time high. We have since experienced a correction, however it was very short lived. I've included some images below that provide a great visual of what the general composite prices have done over the past year (Price Per Thousand Board Feet).
We recently experienced another run, as many distributors, retailers and treating manufacturers are operating "hand-to-mouth". Meaning, wood is already bought before it is even produced. Sawmills are attempting to meet their commitments to contract business while also trying to satisfy the appetite of secondary business. Supply is very limited, and pricing has increased because of the lack of supply.
Moving forward, we may see small corrections and they will be short-lived. Our purchasers and market experts don't see anything changing until Q3. We will likely see prices remain high until demand slows down. Many commercial projects are starting to quote for framing starts in the spring and summer. We will definitely see another spike in prices as we get closer to the busy season (summer).
In respect to plywood, it has been the most interesting segment of this industry. We are at entirely new price levels compared to Sept/Oct 2020 (see chart below). This will not change at least for another 2-3 months. Our market experts believe the pricing will remain at these levels until late Q2. I know the panel market better than the lumber market, and I strongly believe we will continue to see pricing rise for the next month. The market gyrations will come, but will be short lived for the time being.
Overall, we are once again experiencing things this industry has never seen before. I continue to see guys that have been in this industry for 50+ years scratch their head when they are reviewing market conditions. Both lumber and plywood are strong right now, and if we experience any major correction, it won't be until later this year if demand slows and supply increases. IF a major correction occurs, the downline consumers may not see the effects of lower prices until late Q4 2021 or even Q1 2022.
84 lumber is one of my good customers :) I sell a **** load of Fire-Treated plywood and lumber to them. Small world!
