I remember when a 2×4 cost $3. And before you tell me I’m a grumpy old man, that was less sometime in 2019 or 2020. At the moment I’m writing this, a 2×4 costs $8. So what’s going on? Why is lumber so expensive? And will prices ever come back down to normal?
It’s COVID’s fault, but not quite entirely
The COVID-related shutdowns of 2020 were the final trigger for the increase in the cost of lumber, but it was a long time coming. New home construction has been in the dumps since the 2008 housing crisis, and that’s depressed the demand for lumber. Lack of demand meant lack of incentive to modernize or increase sawmill capacity. Why spend money to depress prices further? The market worked the way it’s supposed to work.
Then the sawmills shut down due to COVID-19. And that turned out to be a misjudgment. The economy didn’t fully shut down, so demand for lumber didn’t evaporate overnight. In fact, the opposite happened. People who were stuck at home got interested in DIY. That increased demand for lumber. And then we figured out how to sell real estate without everyone getting sick. And in case you haven’t noticed, the real estate market is absolutely bonkers and that’s why everyone in the world wants to buy your house. Since there aren’t enough houses to go around, it makes sense to build new homes again. So there will be something like 800,000 new homes constructed when 2021 is all said and done.
So the sawmills probably couldn’t have picked a worse time to shut down. But they didn’t know that at the time. That’s the thing about capitalism. It can’t see the future, so it can make mistakes.
Is there enough raw material and labor to go around?
Unlike certain other industries, it’s not a labor problem. There’s enough labor in the lumber industry. And there’s plenty of raw material too. The lumber industry farms trees the same way the food industry farms vegetables. The only problem is the lack of sawmill capacity, and the shortage from having paused output for a bit.
Short supply and high demand is why my cull lumber trick works poorly today. Unless a board is completely trashed, it sells at full price these days. When I bought lumber for my last project, probably 25% of it would have been cull in normal times. But they didn’t have new lumber coming in, so they weren’t culling. It sat there until someone bought it.
When will lumber prices be back to normal again?
From everything I’m hearing, it’s likely to be late 2022 or early 2023 before lumber prices are back to what we remember them being, or something close to it. Prices were too low in 2019, the market overcorrected in 2020-2021, and it will take some time for it to correct again. But it will. Now that there’s money in lumber again, production will increase, and prices will stabilize.