Lumber Prices Fall as Mortgage Rates Contribute to Housing Market Affordability
While the pandemic had a major impact on workers having the ability to perform tasks safely, products across the country experienced major shortages due to supply chain issues. In the lumber industry, the commodity also experienced major changes as prices skyrocketed. Yet as we approach September of 2020, lumber prices are finally falling back to normal levels.
What Created High Lumber Prices?
The pandemic caused three major factors to form: labor shortages, supply chain issues, and high housing market demand. Sawmills lowered their production of lumber as they anticipated that there would be less demand for construction projects. They also reduced their workforces to account for this decrease in production. So there were fewer workers available and a decrease in lumber supplies across the country.
However, many people started doing home remodeling projects during this period while in isolation. They also looked for new homes. These aspects created a high housing market demand that was still recovering from having low housing inventory even before the pandemic. With the high demand of construction projects and slowdown of lumber production that could not meet this demand, the price of lumber increased.
Lumber prices hit a record high of $1,733 per thousand board feet in 2021, according to Realtor Magazine. With lumber prices this high, the housing market also saw an increase in home prices. An average single family house may have seen an additional $18,600 added to the original home price. In addition, tariffs on imported Canadian lumber also increased from 9% up to 17.9%, according to USA Today.
Lumber Prices Finally Falling
Even with inflation still high, lumber prices are now finally falling from the record high costs in 2021. From May 2021 to Jun 2022, prices decreased up to 65%. The prices fell again about 7% up to August 3, which saw an overall decline of 71% since 2021, according to Business Insider.
Contractors may see prices ranging from $600 per thousand board feet as we enter the last few months of 2022. While this price is still higher than the $400 per thousand board feet that we had during pre-pandemic, it is still lower than the 2021 peak. In turn, construction floor plans are also seeing a decrease in prices, encouraging people to reenter the housing market.
However, the construction industry must keep in mind that affordability is still playing an important factor to construction project numbers. Mortgage rates also increased during the same period as did lumber prices.
Now as mortgage rates experience a fall of 50 basis points for 30-year mortgages, and inflation is set to lower in the coming months, more homeowners will be able to afford to build new homes and take on existing home remodeling projects that they had to forego of during 2021.