The root of rising lumber prices during the COVID-19 pandemic
Home became the hub for every aspect of our daily lives in March of 2020, when stay-at-home orders were enacted. Many Americans turned to home renovations, DIY projects, and even wood-working hobbies to occupy their time. This increase in demand for lumber led to a huge increase in the price for wood.
But as the prices soared, sawmill workers were unable to keep up with high demand because they were forced to stay at home. In May, the price of lumber reached a record high of $1,607.50 per thousand board feet. In early 2020, lumber prices stayed around $400 per thousand board feet before plummeting to a low of around $300 per thousand board feet in April of 2020. This was mainly due to a shortage in many supplies — not just lumber — and contributed to rising inflation. Lumber production was also hindered by COVID-19 restrictions in the workplace and an undersupply.
Another aspect of the lumber shortage had to do with the fact that contractors were signing agreements with clients that would be carried out in the future (not immediate). This ultimately took more wood off the market because it needed to be allocated to large housing projects.
The chart below shows the lumber price in the U.S. per thousand board feet from January of 2020 to the end of July 2021. It is clear that the record high prices of about $1,000 per thousand board feet in early fall of 2020 were exceeded in May of 2021 as prices began to climb again around December 2020. This was likely due to the resurgence of COVID during the winter months, which might’ve led more people to continue home renovations as they worked from their houses.
This whole phenomenon is interesting because normally during a recession the housing market slows, which means lumber companies usually reduce production. However, the COVID-19 pandemic was an anomaly because people were spending so much more time in their homes. Whether it was moving to the suburbs or adding on a room to the house for a home office or gym, the demand for lumber increased by record numbers.
But this uptick in lumber prices can be analyzed on a global scale as well. Because a lot of the wood is turning into furniture and flooring in China, the supply chain was stopped early on in the pandemic as people became infected with the virus.
In April of 2020, the price of lumber dropped because there was less demand from US consumers to buy furniture due to a decrease in wages. This also led to a large decrease in imports from China during this period because China produces the furniture that the US imports and the shipping lines got backed up because of COVID.
From the graph, it is easy to see that prices for lumber, as of May, are steadily decreasing as the pandemic begins to calm down and restrictions on workplaces are easing up. Because sawmill workers have gotten back to work, there has been an increase in production.
As some people begin to spend less time at home because they are returning to the office, they are less willing to invest in their home. This is also reflected in the decrease in lumber prices.
The consequence of these high lumber prices are directly linked to increasing home prices due to the more expensive materials needed to build houses. Unfortunately this has caused many families to walk away from buying homes because the price is too high at this moment.
