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Lumber prices in the U.S. spiked by 188 percent year over year from March 2020 to March 2021.[1] In March 2021, they hit a historic high of $1,044 per 1000 board feet, with an outlook for continued volatility in the $700 to $900 range.[2] The National Association of Homebuilders has calculated that at least $24,000 has been added to the cost of a typical single-family home.

A number of lumber mills closed as the COVID pandemic took hold in 2020, and while construction also slowed for a while, there was little issue. While the construction industry has come back strong, lumber mill production is still lagging. To add to this problem, home renovations rocketed during the pandemic, further reducing the lumber available to commercial construction. Between March 20, 2020 and April 5, 2021, Home Depot’s share price was up 238% and Lowe’s was up 292%.

With over 33 years of industry experience, Lionel Dore, our BTY Director leading the Florida region, highlights how the spike in lumber prices has hit particularly hard in Florida — housing starts have significantly dropped and fewer single-family homes are being listed for sale, adding to the constraint in supply. With more people moving to Florida each year, this is adding pressure to the housing market which has already seen an increase in prices due to the lack of available homes. This problem may continue to grow given the ability to work remotely, which has been brought to the fore during the pandemic.

The Florida statewide median sales price for single-family existing homes in January 2021 was $305,000, up 15.1% ($30,400) from the previous year. New homes usually sell for a little more than existing homes, so with the added costs of increasing lumber prices, new home builders could potentially absorb the cost of the increase in lumber without having to pass on additional cost to buyers. Obviously, that would mean a decrease in the percentage of profit, but we are seeing some new home communities and comparable existing homes at virtually the same selling price. That may be because new home builders in certain communities see the price ceiling for a particular model being reached. That is not to say that new homes and existing stocks will not increase.  Constrained supply points to further price increases through 2021 in Florida, as immigration from other states continues. There is also pent up demand from overseas buyers, especially in Orlando, as US borders have been closed for over a year, and very few buyers will commit to spending potentially hundreds of thousands of dollars sight unseen.

The combination of high prices and supply issues with lumber as well as other materials is slowing construction with delays and cancellations, especially in the surging residential sector. Reduced supply from Canada – down for the fourth year in a row with the pandemic further aggravating existing shortages – and a surge in demand, especially from residential builders, are driving the lumber price spike.

Steel prices also rising amid supply shortages

Lumber is not the only material seeing price increases and supply issues. Some 71% of contractors surveyed for the Q4 2020 U.S. Chamber of Commerce Commercial Construction Index (CCI) say they are facing at least one material shortage. At 31%, lumber was the most-cited, followed by steel or electrical supplies other than copper wire (11%) and lighting supplies (10%).[3]

Material shortages and price hikes also have multiple drivers; most are related to Covid-19. They include lowered production that has not fully rebounded from sharp declines in demand in Q2 2020 due in part to layoffs, ongoing pandemic restrictions in factories, and continuing global supply chain related delays such as shipping backlogs, and tariff and border issues.

Contractors challenged

Both residential and commercial builders surveyed for the CCI report also say the shortages are leading to struggles in meeting schedules, higher bids, worry about project shutdowns and passing on work opportunities.[4] The overall effect is putting downward pressure on profit margins for contractors as well as architects and developers.

Short-term Strategies for reducing the impact

Contractors and developers can take immediate steps to protect their projects from further increases and shortages, including:

•  Securing the supply of materials as quickly as possible in the event of further shortages

•  Building longer lead times for material orders into construction schedules

•  Complying with contract terms with lumber suppliers to mitigate any changes in prices

It can also be helpful to seek professional advice from a firm such as BTY. We can assist on multiple fronts through:

• Preparing cost estimates based on market prices and intelligence

• Analysing how lumber price increases affect the overall development costs and impact on schedules

• Conducting value engineering exercises to align with pricing or budget constraints. For example, in some cases the introduction of steel stud into traditional wood frame buildings may be viable option.

Increased output solution to current challenges

Restoring stability to prices and supply, however, will require mills and factories to increase output, which should be more easily accomplished as mass vaccination continue in concert with easing Covid-19 restrictions.

Despite the current challenges, the outlook is favourable as 2021 progresses, according the Associated Builders and Contractors’ Construction Confidence Index. The index, which measures contractors’ expectations for sales, profit margins and staffing levels over the next six months, is showing a sharp uptick in contractor confidence.[5]

Part of that improved outlook is credited to the anticipated effect of the federal government’s massive stimulus spending, including the $900 billion relief bill passed in December 2020, and the $1.9 trillion American Rescue Plan passed in early March.



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