I made a very expensive trip to Lowe’s the other weekend. I needed to buy some lumber to replace some rotting decking that was probably becoming hazardous, not to mention an eyesore. I didn’t pay much attention to the sticker price as I loaded the 2x4’s because I needed the lumber either way. But when the cashier rung up my total, I thought there had been a mistake. Turns out, there wasn’t. The $400 bill added up. I thought back to when I constructed this deck about a decade ago and remembered the cost for building the entire structure cost less than that. It was a take-it-or-leave it transaction, so I paid the friendly cashier and went on my way. Later that day, I was still convinced that the price tag was a little excessive, so I did as all people do, and I Googled lumber prices.
It turns out that during the pandemic, everyone else had the same idea to do some home repairs, and lumber was in high demand. That makes sense now. It didn’t cross my mind as I only purchase lumber every ten years apparently. I just figured prices go up. So who knew? Well, contractors obviously.
They're buying the sky-high contracts in order to ensure they'll actually get the lumber they need for projects already under contract. Since the pandemic, the price of lumber has gone up 232 percent! At the same time that lockdowns caused mills to halt production, bored quarantining people like myself were rushing to Lowe’s to buy up materials for home projects. That caused lumber supply to plummet. On top of that, record-low interest rates caused a housing boom. In March, new housing hit its highest levels since 2006. Of course, new homes require a lot of lumber, thereby adding to the shortage. Supply shortages plus increased demand equals skyrocketing prices.
In fact, higher lumber prices have added more than $16,000 to the price of the average newly built home. Builders, however, can only pass on so much of their costs, as buyers can only afford so much. These higher costs are, in turn, cutting into builder profitability and margins. As prices rise, builders are taking hits to their profits to the point where projects are having to be put on hold or deferred, if not canceled outright. This is the case because the projects simply weren’t financially feasible anymore. Also, because of the increased cost, a homebuyer would no longer be able to afford the home. Prices were passed to the homeowners to some extent, but that can only go so far. So there’s a perfect storm of problems at play here.
So how long will this go on? As prices climb every day, it’s anyone’s guess. It turns out money does grow on trees.