Wood You Believe It? Lumber Prices on the Rise Yet Again

The cost of lumber in the US reached its peak in mid-2021, as a misreading by lumberyards and homebuilders of the impact of COVID-19 on consumer behavior led to a shortage of lumber and prices triple those seen in early 2020. The situation was exacerbated by COVID-related supply chain issues and tariffs on softwood lumber imports from Canada. This greatly increased the cost of new home construction (around $36,000 per home, according to the National Association of Home Builders) and home renovation projects, which became especially popular among the vast amount of households stuck at home during the pandemic.

Lumber costs finally fell in the summer of 2021, as DIY-inclined homeowners grew fed up with sky-high lumber costs and postponed their renovation projects. While lumber costs remained well above pre-pandemic levels, there was some sentiment that the market had stabilized enough to avoid further short-term price spikes.

Well, that lasted a few months. In 2022, lumber prices are again shooting up, and as of February 17, are nearly three times the levels seen as recently as August 2021. This latest jump on the trampoline is caused by a variety of factors, such as:

• the November decision by the US Commerce Department to double its tariffs on Canadian softwood lumber imports to nearly 18%, despite the inability of domestic sawmills to meet US demand
• damage caused to Canadian forests by a plague of mountain pine beetles and a strong wildfire season
• labor shortages for sawmills that contribute to output lagging new home demand
• broader inflationary pressures impacting operating costs

Are there reasons to believe that lumber prices will regress in the near-term? A receding of the Omicron wave could help ease labor and supply chain issues. Additionally, the Commerce Department could ease its tariffs on Canadian softwood lumber imports (as it did in 2020), which run contrary to both President Biden’s trade policy criticisms while running for president and his administration’s affordable housing goals. Lumber demand, in the meantime, will remain high.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly in the Construction and Building Products. Freedonia Custom Research is also available for questions requiring tailored market intelligence.