Without a doubt, the COVID-19 pandemic has thrown a wrench into just about everything and every industry – particularly upending the normal forces of supply and demand. Lumber is a prime example, reports CBC Canada.
Kevin Lee, The CEO of the Canadian Home Builders Association, says the cost of basic lumber like two-by-fours has doubled since 2018. “[That adds] tens of thousands of dollars depending on the size of your home.”
In Lewisburg, West Virginia, Matt Boswell, who works for SJ Neathawk Lumber Company, echoes the same woes as Lee. Boswell says that during the pandemic, the demand for materials increased, but because of shutdowns and other issues, manufacturers are finding it hard to keep up with the demand, according to local CBS-FOX affiliates WVNSTV.com.
“The struggle is they are still not operating. All these companies aren’t operating at full capacity, so we’re not getting lumber on a full capacity,” Boswell said, adding that limber prices have increased 30 to 40 percent since the beginning of the pandemic.
“It’s now costing 20-30 percent more to build that home,” Boswell said. “We are running into that which slows it down. People are wanting to either stop and hold off and see if the prices go down, but from what we are seeing they’re still going up.”
Another perfect storm of Supply and Demand
In August 2020, Fortune published an article looking at how the pandemic was both causing lumber demand to spike and lumber supply to fall.
Calling the situation a “perfect storm,” Fortune noted that lumber prices skyrocketed 134 percent, adding about $14,000 to the cost of the average new single-family home construction, according to the National Association of Home Builders (NAHB).
The problem was that while analysts assumed that lumber prices would fall back to pre-pandemic levels – they were wrong. And this applies to Canada and the United States.
In the U.S., when states began locking down in March 2020, sawmills across the nation were shuttered. British Columbia, Canada at that time was already experiencing an economic downturn in its lumber industry going back to 2019.
And on both sides of the northern border, the coronavirus pandemic hit equally hard when it came to the limber industry, as a whole. Lockdowns shuttered sawmills and the resultant shortage of lumber came at a time when people were forced to stay home.
And what better time to do some renovations than during a pandemic? Not only did people start building more decks and fences, but many also renovated to accommodate their new work-from-home lives. This caused a rising need for more lumber.
And things did look pretty good by the end of 2020, with lumber prices beginning to level off, but then, the coronavirus variants began taking hold.
Where the lumber industry strands today
Supply and demand is not just a local issue anymore. CBC Canada cites U.S. Federal Reserve Chair Jerome Powell – who says the best cure for supply crunches and high prices is time.
“It’s very possible … that you will see bottlenecks emerge and then clear over time,” he said. “These are not permanent. It’s not like the supply side will be unable to adapt to these things. It will — the market will clear. It just may take some time.”
But, are these sky-high lumber prices the new normal? Dustin Jalbert, senior economist at Fastmarkets RISI, doesn’t believe so.
“When you think about DIY and home renovations, some of the demand and spending in that channel could cool as the service side of the economy reopens: People traveling more, going to restaurants, means they’re spending less time at home…To some degree, it should cool the renovation boom,” Jalbert says.