How Developers are Adjusting to Rising Lumber Prices

January 6, 2022

By: The Working Forest Staff

GLOBEST.COM — Following a few months of moderating prices last spring and summer, lumber prices are soaring once again.

Over the past four months, lumber prices have nearly tripled, causing the price of an average new single-family home to increase by more than $18,600, according to the National Association of Home Builders’ standard estimates of lumber used to build the average home. 

This lumber price hike has also added nearly $7,300 to the market value of the average new multifamily property, which translates into households paying $67 a month more to rent a new apartment.

According to Random Lengths, as of Dec. 29, the price of framing lumber topped $1,000 per thousand board feet—a 167% increase since late August.

Developers said that this pricing environment is leading them to include escalation clauses in their contracts and more often spec building to preserve margins.

Why Lumber Prices Have Surged

The unprecedented price volatility in the lumber market dates to April 2020 when the COVID-19 pandemic took hold and sawmills curtailed production in anticipation of reduced demand. When it became clear in the ensuing months that housing weathered the storm much better than predicted and demand remained strong, lumber mills did not ramp up production, accordingly.

The slow reaction by sawmills, combined with a massive uptick in demand from do-it-yourselfers and big-box retailers during the pandemic resulted in lumber prices peaking at a record-shattering $1,500 per thousand board feet in May 2021, before beginning a gradual decline through late August.

This most recent lumber price upsurge is due to a number of factors, according to NAHB, including ongoing supply chain disruptions; a doubling of tariffs on Canadian lumber imports into the US market that increased price volatility; and an unusually strong summer wildfire season in the western United States and British Columbia.

Spec Building Mitigates Risk of Price Spikes

Housing analysts at Zelman & Associates, a Walker & Dunlop company, tell that when soaring lumber costs first became an issue last year, builders began including escalation clauses in their contracts.

“We’re starting to see more builders return to spec building,” a spokesperson from the firm said. “They weren’t able to do this earlier in the pandemic because they couldn’t keep up with all the orders they were getting when demand surged, but after benefiting from that for a while, we started to see them intentionally hold back sales. 

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