A perfect storm. That's the best way to describe 2021's lumber price increases.
It was spurred by a combination of COVID-19 shutdowns, do-it-yourselfers home improvement projects, a booming housing market, tariffs, and wildfires. Cue record-breaking wood prices.
But how much longer will it last? As a new year approaches, everyone is kind of wondering... "What can I expect for 2022?"
Already, there are signs the prices are projected to stabilize, but there are a few factors and issues that may continue to impact the price of lumber.
So what can we expect for 2022? Let's take a look.
First, a quick recap of 2021
Because of the pandemic and a few other instances, wood prices this past year rose to record-breaking prices.
The price of softwood lumber hit its all time high on May 28 at $1,711 per thousand board feet.
For reference, the price of lumber was usually between $350 to $500 per thousand board feet before the pandemic (that's a 288% price increase).
However, with the vaccine and state mandates lifting, people put their home improvement projects to the side. Demand was cooling down and prices were steadily declining. Which was good!
But in October, there was a bit of concern as industry professionals noticed the price of lumber going back up. A 50% increase since August, to be specific.
It got so concerning that on Oct 6th, the National Home Builders Association (NAHB) wrote a letter to President Biden alerting him about lumber prices over the last year, what the wood industry went through, and warning him the effects of a continued increase.
The letter wrote, "Unfortunately, forecasting trends indicate these increases will continue into the near future, and news of mill curtailments are stoking fears of another massive price spike this fall and next spring".
Plus, not only were lumber prices increasing again, but the housing market was still positive for demand.
The outlook for 2022
Will the price of lumber go down in 2022? Not really. At least for the first two quarters, no. Experts are calling 2022 a watered down version of 2021. Meaning price increases might slow down, but overall, prices are still going to be abnormally high.
There are 5 big reasons why lumber prices won't budge. We dissected and went over each one below.
1. The housing market is still strong
Despite a national pandemic, 2020 and 2021 were two of the hottest years for the housing market.
Millennials hitting their peak home buying years and recession-induced interest rates helped spur this housing boom.
Houses were being sold very quickly. Like on the market for only 4 days quickly. Which left housing inventory low and sent buyers looking at new construction. Which, as we all know, requires a lot of lumber and materials.
As we head into 2022, the housing market is projected to slow down, but not by much. Competition will be less intense, but it's still going to be a hot market. Which unfortunately puts a lot of stress and pressure on the lumber industry.
2. High demand for renovation
The pandemic saw the rise of do-it-yourselfers and home renovation projects, which made the demand for wood go up. Significantly.
Once prices got really high, homeowners and DIYers put their projects on hold and didn't buy much wood.
That helped lower the demand, which lowered prices. But when prices started to decline in the summer, price-sensitive buyers proceeded with their home improvement projects. And then the price shot back up.
3. Oh Canada
Canada is the number one exporter of lumber to the US. More than $5 billion worth of lumber a year.
This means the United States lumber prices are heavily dependent on Canada's lumber industry. And unfortunately, Canada had a perfect storm of their own in 2021: flooding, infestations, and tariffs.
Early in 2021, Canada was hit with severe flooding and rain that disrupted several highways and rail routes, which significantly impacted lumber shipments.
And on top of that, Canada has been dealing with an epidemic of mountain pine beetles that by 2020 had destroyed 15 years of log supplies.
Now, mix in international relations and tariffs and you got hiked lumber prices. In November 2021, the U.S. Department of Commerce decided to double the amount of duty it imposes on softwood lumber that comes from Canada. It went from 8.9% to 17.9%.
This raises production costs on lumber shipments to the US, putting more upward pressure on lumber prices.
4. Tight supplies
With everything listed above, it's safe to say supplies are tight. Lumberyards are still struggling to build up inventory.
Wood production at mills has increased signficantly. We're producing more wood than we ever have in 13 years. Which is great.
But it's going to take some time to correct the industry completely. Because on top of producing to meet existing demand, sawmills are also trying to fill the inventory hole that happened in 2020. And the entire supply chain remains under stress as this happens.
5. Labor shortages
Even though sawmills are trying to boost output, they're all running into a problem: no workers.
That problem even has a name: The Great Resignation. Industries across the nation (restaurants, hospitality, retail, construction, etc.) are experiencing massive labor shortages. And the lumber industry is getting hit pretty hard. At all levels, too: logging, mills, truckers, and laborers.
There's a few reasons this is happening. When COVID hit, a lot of skilled workers decided to retire, which created a giant hole in the workforce. And on top of that, as the world turned more remote, a lot of workers decided they'd rather find a WFH job.
The job market is hot right now. Everybody is looking for workers, so there's a lot of competition. And with big retail giants raising their wages to attract more candidates, it can be hard to compete with.
Until the shortage is resolved, lumber yards will continue to feel its effects.
How to handle these high prices
There are a few things you can do, whether you're a one man crew or a medium to large sized shop, to help protect your business during this time in the lumber industry.
- Plan, plan, plan. With the market where it's at right now, planning is more important than ever. Forecast what you need from your suppliers as far in advance as possible. Doing this helps us know what wood you need from us and gives us the time to get our hands on it.
- Communicate. Along the same lines as planning, you should always be communicating with your suppliers. Especially on larger, higher volume or reoccurring projects where you might need more material. That way we can work with our mills and get you the wood you need so the job gets done in a timely manner. We need to all be working together during this time.
- Order in bulk. With materials that you order frequently and aren't very job-specific, like panel material, we suggest ordering in bulk. If you usually order enough for the job, try to order enough for a few jobs at a time. It ends up being cheaper for you in the long run and it's less time you have to spend waiting for your materials.
- Talk to your customers. It's important to be open and transparent with your customers at all times, but now more than ever, it's crucial. Make sure they understand what's going on in the industry. It'll help prepare them to set realistic expectations on the project timeline and budget. If your material costs are increasing and the amount of time required to get materials is also going up, set the stage with your customers to ensure everyone is on the same page. Proactive strategic planning are crucial with the current market. If you need to increase your prices to your customers to keep up with rising material costs, don’t wait until your business has already taken a hit.
There is good news, though
As the country reopens and people return to the office, lumber demand should die down.
Prices may not go as low as they were pre-pandemic, but the good news is we don't expect to see any surprise lumber price hikes going forward.