Lumber Prices Are High, But the Real Problem is Price Volatility

Record price fluctuations

Lumber prices—in constant flux—rose, fell, and rose again. New analysis shows that high prices don't present the danger so much as market volatility. The cost of lumber fluctuates more than it has since overseers kept records at the end of World War II.

According to data from the Bureau of Labor Statistics, the price of softwood lumber has increased 45% since September. That price jump led to a 1.5% industry-wide construction cost increase.

Volatile costs complicate builders' ability to forecast and set prices. Between 1947 and 2019, softwood lumber experienced an average monthly price change of 0.3%. Since January 2020, the average hiked up to 12%, the most historically significant average monthly change at three times the previous record.

"When you introduce the cost volatility that you see in major products like lumber, it just makes it that much more difficult for builders to expand their level of home construction, which in turn, reduces the available inventory in the market," said Robert Dietz, chief economist at the National Association of Home Builders. "So the cost volatility you see in the construction space is in part responsible for some of the price gains in the overall housing market."

‍

90% framing in US is wood

United States construction companies use wood frames in 90% of homes (9% concrete, 1% steel).

"As goes the lumber industry so goes pacing and pricing of single-family home-building," Dietz said. "However, the most significant impact is on first-time home buyers and low-income housing, as those buyers are much more sensitive to price fluctuations."

"Consumers in the market for a new home should be prepared to wait, and with price volatility and other challenges contributing to delays, the wait is likely to be longer than usual," said Danielle Hale, chief economist at Realtor.com.

With no end in sight, volatility in lumber prices continues to disrupt construction costs for contractors and prospective new home buyers.

‍

‍