Why Are Lumber Prices Rising?
If anyone thought that the single-family housing market would be depressed by the COVID pandemic, nothing could be further from the truth. Many people are looking to buy land outside of big cities and build new homes. They are doing so for a variety of reasons, including improved quality of life in the current environment combined with the ability to work from home.
As a result of supply and demand, lumber prices are at historical highs. There have been similar increases in plywood and OSB along with steel, gypsum, and a host of other building materials.
COVID affected the lumber industry initially, in the early days of the pandemic. Factories were closed and staff were dramatically cut, with only skeleton crews working. The demand for new homes as a result of isolation was unexpected and was partly fuelled by low mortgage rates in real estate. Many decided it was time for a new home and when the real estate market for existing homes became overwhelmed, buyers turned to building custom homes and renovating their existing homes. This created a surge in demand for lumber. Lumberyards and mills were quick to start up again, with increased safety measures in place, but due to massive demand and smaller teams working, the prices shot up.
According to NAHB (The National Association of Homebuilders) “Lumber prices have skyrocketed more than 240% since last spring. This price spike has caused the price of an average new single-family home to increase by more than $36,000 since April 17, 2020.” For some buyers looking to build, however, prices have almost doubled.
No End in Sight
Many buyers have decided to wait to build in hopes material costs will go down, but there is no sign that this will happen within the next year. In an article by CFI, they mention “prices of softwood lumber and panel commodities are not going to drop significantly. The momentum of ongoing strong demand for new building, as well as for remodeling, will result in continued large volumes of lumber sales until the end of the year, if not longer.” It is likely that with inflation, the prices will rise even higher.
This massive increase has forced many builders to raise prices, or face going out of business. NAHB is currently working with policy makers to “examine the lumber supply chain and identify solutions to increase production.”(NAHB)
Builders and Rising Lumber Prices
Building materials are more costly than ever before and as a result, builders have noted that rising lumber prices and the ability to find supplies are their main obstacles in 2021. Most builders are now including price increase clauses in their contracts in order to compensate for the volatile state of the lumber market. Those who are looking to build must sign off in agreement that the prices could change, up until the materials are purchased. 47% of builders in the US alone have included a price escalation clause in their sales contracts.
Unfortunately, many builders have stopped giving any sort of fixed pricing, preferring to pass the risk of price escalation over to the customer. Building material line item costs in construction contracts usually list the prices based on that day’s quote, with clauses noting that pricing will not be held beyond that specific day. While it makes sense for builders without purchasing power to do this, it does not give the customer any certainty.
According to NAHB, the typical price guarantee is a median of 28 days. Buyers have less than a month before they risk price increases on their building materials.
The Advantage of Using Pre-Cut Materials
The situation is so tight in some areas that smaller building yards cannot even get certain SKU’s of lumber regardless of price.
This leaves many smaller-scale builders without the ability to obtain any products at all. In a time of such scarcity, suppliers or wholesalers are being forced to prioritize certain clients over others. This always leads to maintaining the relationship of larger and consistent clients who buy in bulk, rather than on a per-project basis. This leaves a lot of small builders feeling the pinch of being waitlisted to get material, and their customers have to delay their construction projects as a result.
The result is that the cost of building a new home is rising by many thousands of dollars and builders are scrambling to find products to move ahead with their projects. Many builders are now booked up for both 2021 and 2022 and find the benefits of using pre-cut materials and panelized wall systems in a time of labor shortages to be compelling.
We have been fortunate at Linwood. Our history of consistently pre-purchasing large quantities of lumber has made our long-standing relationships with major suppliers really count in these times. We continue to have access to both a high volume and high quality of product – a big problem for many smaller local lumberyards.
Price Protection Guaranteed at Linwood Homes
At Linwood Homes, we strive to be your complete building solution. We provide expert advice, site-specific designs, premium materials, and access to our builder network – all at a fixed price. In a world of uncertainty and change, we provide an efficient and streamlined way to build your home.
Linwood is unique in the custom home building industry. We have always been proud to offer price protection for our customers, and it has never been as valuable as it is today. In a world of uncertainty and change, we pride ourselves on being a constant – here to help you build your dream home.
We offer customers price protection for an extended six-month period. This allows builders a realistic timeframe to commence construction. We are therefore able to honor our clients’ budgets for projects and give accurate prices despite lumber and material shortages. We have longstanding ties with key industry suppliers and purchase products in bulk for the long term.
We know that it is an uncertain time for everyone, but we want to reassure our customers that price protection is guaranteed at Linwood Homes. There is certainly no shortage of lumber in our yards and we look forward to helping you get your project started.