Renovations already have the reputation of taking twice the time and costing twice as much as homeowners expect. Now there’s a new twist: Getting wood is going to cost you extra, too.
State lockdowns in the spring caused sawmills across the nation to close, leaving California redwoods and Southern yellow pine uncut and reducing lumber on the market. At the same time a surge in home renovations and do-it-yourself home projects during the pandemic—just look at the earnings of Home Depot and Lowe’s—and rebounding home construction have increased the demand for timber.
Reduced supply plus increased demand is the formula for soaring prices: The price of lumber has soared 134% year over year, according to figures provided by Random Lengths to Fortune.
“This is a severe lumber shortage…Demand is hot and continues to be strong. In the next month or two it’s going to continue to be elevated,” Dustin Jalbert, senior economist at Fastmarkets RISI, told Fortune.
At the onset of the pandemic, Jalbert says, it was largely assumed in the industry that housing would slump or crash. But housing and new home construction has surged back this summer: Sales of new homes hit their highest levels since 2006 in July, jumping 36% year over year, and home construction—housing starts—climbed 22.6% in July. A combination of lower interest rates, an influx of first-time millennial home buyers, and a 50% rebound in the S&P 500 has combined to create a hot housing market despite a double-digit unemployment rate.
Around 40% of all lumber goes toward repairing and remodeling homes, Jalbert says. During the pandemic, DIY projects exploded as Americans took advantage of their time cooped up at home.
And that 134% increase in lumber prices has added around $14,000 to the cost of building a new home, according to a calculation by the National Association of Home Builders provided to Fortune.
Most of that cost is getting passed from the builder to the consumer, Robert Dietz, chief economist for the National Association of Home Builders, told Fortune. The median price tag for new homes sold in July was $330,600, up $22,300 from July 2019, according to the U.S. Census Bureau. For every $1,000 increase in home price, around 150,000 U.S. families get priced out, Dietz adds.
Will the shortage let up anytime soon? Jalbert at Fastmarkets RISI says lumber supplies will be encumbered for months, but could begin to level off by the end of the year.
And trade disputes between the U.S. and Canada are also playing a role. In 2017, the Trump administration imposed 20% tariffs on most Canadian lumber. On Monday, the World Trade Organization sided with Canada, ruling that Canadians weren’t improperly subsidizing lumber production—as the White House argued when it imposed the tariffs.
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- ‘Deal of a decade’: How buying TikTok could transform Microsoft
- American Airlines announces plan to cut 19,000 jobs—unless Congress extends pandemic aid
- Sacramento may pay COVID-infected workers $1,000 to stay home
