Lumber prices have been steadily dropping since they hit outrageous highs during the height of the pandemic in 2020.
COVID-19 affected the price of lumber (and custom home building) in part because the industry went into the pandemic with a lower supply than normal, while demand increased far more than expected. People were working from home and spending more time there, and thus wanted to take advantage of that time to engage in remodeling projects or new construction that would allow their homes to better meet their remote working needs.
Lumber futures hit $1,600 per 1,000 board feet in May 2021, which was an increase of more than 300 percent over April 2020. Since then, prices have steadily fallen by more than 50 percent, but they are still quite a bit higher than where they were before the pandemic.
The expectation is that these prices will continue to fall, at least to a point. But what does that mean for the costs of construction?
Does lumber pricing affect the price of building a home?
High prices of lumber were certainly among the factors that resulted in massive increases in the price of building a new single-family home. From April 2020 to May 2021, that average cost grew by around $36,000, which resulted in millions of people being priced out of a market they might have been able to enter a year and a half ago.
However, lumber was not the only factor in these increases, which means it may take some time for the costs of construction to fall.
Mill prices have yet to stabilize, and home builders and remodelers won’t see price relief until the decreases in material costs have occurred for a substantial period. What’s more—for every dip that occurs on the supply side, it could take weeks to months for those price decreases to translate to lower costs of lumber in stores.
The larger concern at the moment is a labor shortage that has upturned the industry. There has been an increasing shortage of construction workers and contractors over the last couple decades, but that shortage became particularly evident during the pandemic. Such a labor shortage translates to longer wait times for jobs, and longer times to completion, both of which increase prices.
So, while lumber prices are falling and that will provide some relief to people taking on construction projects, the real question mark right now is what’s going to happen with the labor pool and whether there will be an increasing number of people taking on these construction projects.
We continue to analyze how COVID-19 has affected pricing of custom home building and remodeling, and look forward to the market hopefully finding some stability in the near future. The good news is that things are trending in the right direction at the moment, meaning people who have been waiting for prices to fall before taking on new work might not have to wait too much longer.
For more information about the state of the construction industry and current pricing, contact UpDwell Homes LLC.