New home lumber shortage: Expect to pay $24,000 more as limited wood supply pushes prices up 180%

It’s often said renovations take twice as long and cost twice as much as you’ve budgeted for. But even that might be optimistic now, given the recent surge in lumber prices.

Back in August 2020, Fortune published a n article looking at how the pandemic was both causing lumber demand to spike and lumber supply to fall. The perfect storm caused lumber prices to skyrocket 134%. That added about $14,000 to the cost of the average new single-family home construction, according to the National Association of Home Builders (NAHB).

Analysts assumed prices would quickly fall back to earth. It didn’t happen.

Instead, they have risen further. As of the week of Feb. 18, the price of lumber per thousand board feet is at $992, according to Random Lengths. Prices are up 180% since the onset of the pandemic. The NAHB calculates current lumber prices are adding $24,000 to the price tag of a typical new single-family home.

What exactly is going on? Well, when states issued lockdowns in the spring of 2020, sawmills across the nation closed. Cue a falling lumber supply. At the same time Americans quarantining at home realized it was a great time to undergo home renovations or do-it-yourself projects. Cue a rising demand for timber.

Prices started to drop in the fall of 2020, hitting $550 per thousand board feet in early November. It looked like the correction was starting. However, the U.S. explosion in COVID-19 cases in the final weeks of 2020 saw sawmill production slow down, particularly in areas cutting much sought-after California redwood. That helped push prices sky-high again.

Don’t blame Lowe’s and Home Depot patrons alone: Homebuilding is booming during the pandemic, which is also worsening the lumber shortage. Indeed, in December 2020 we hit a 14-year high in new housing starts.

The 2008 financial crisis and subsequent years notoriously saw housing crash and home construction plummet. So how come we’re seeing a boom this time around? For starters, housing was never a driver of this crisis. Second, near-record low interest rates. Third, the biggest cohort of millennials, those born between 1989 and 1993, are amid the five-year stretch, 2019 to 2023, when they will all hit their thirties, which are considered the peak homebuying years.

Another factor limiting supply: Many older Americans are opting to wait until the pandemic is over to sell their home, which is causing existing home inventory to fall and more buyers to turn to new construction. Prices are following suit: Since the onset of the pandemic, the median sales price of new U.S. homes has increased $27,700 to $355,900.

Are these sky-high lumber prices the new normal? Dustin Jalbert, senior economist at Fastmarkets RISI, doesn’t believe so. He told Fortune a correction will come. Already, more harvesting operations are sprouting up in southern states like Texas and North Carolina. Increased supply paired with a successful vaccine that prevents future halts in production, Jalbert says, should bring prices down. Not to mention, the DIY fad should slow down post-pandemic.

“When you think about DIY and home renovations, some of the demand and spending in that channel could cool as the service side of the economy reopens: People traveling more, going to restaurants, means they’re spending less time at home…To some degree, it should cool the renovation boom,” Jalbert says.

But, predicts Jalbert, the lumber correction might not arrive until the second half of 2021.