For everyone from avid DIYers to construction professionals and lumber sellers, lumber price matters. It's also been an ongoing challenge for many many in the construction field as prices fluctuated wildly over the last two years. It's very hard to make accurate estimates for a project when you can't predict material pricing from month to month.
In September, though, lumber prices took a sharp downward swing of around 6 percent. While it might not sound like a lot, it was enough to earn the label the September Lumber Crash.
Wondering what caused the crash? Keep reading for what you need to know about this price crash in the lumber market.
Before you can really understand the cause of the price crash, you need to understand what drove the massive price increases in the first place. Much of the blame lies with the pandemic, which triggered construction material shortages in 2021.
Production numbers fell in almost every industry because of mandatory quarantines, social distancing rules, and stay-at-home orders. Those rules sharply curtailed the amount of work that lumber mills could realistically perform. Without enough bodies on-site, total production numbers crashed.
There was also increased demand from a new quarter. While DIY projects have always been popular with a certain segment of the population, increased time at home launched something of a renaissance for DIY.
With so many people working remotely, it gave homeowners more time to really look at homes and decide that they wanted something new. Increased DIY activity put new demand on the limited lumber stock and drove the prices even higher.
Ongoing supply chain issues also drove increased prices as stock availability became increasingly questionable. So, with the original price increase explained, let's look at the crash causes.
Real Estate Market Changes
For several years, the real estate market has enjoyed ever-increasing prices on residential real estate. Some of this stems from an already existing shortage in available inventory in real estate. In short, the U.S. falls millions of houses short of what it actually needs.
This situation was paired with a sudden burst in interest in home buying among millennials with enough disposable income to spare for an investment in a home. This was also spurred on by low interest rates on mortgages.
That strong real estate market encouraged the construction industry to get back into the business of building houses. Something that they hadn't really done since before the 2008 financial crisis.
Recently, the interest rates on most loans and mortgages in particular, have had a cooling effect on the real estate market. Pair that up with sharp inflation, and the seemingly insatiable demand for homes has become, well, more satiable.
With less rabid demand, real estate investors lose some of their reasons for aggressive building. That, in turn, reduces the demand for lumber. Ironically, lower lumber prices might actually help bring down home prices to a somewhat more reasonable level.
Unnatural Market Conditions
In some ways, you might see the September Price Crash and the seeming return to cheap lumber as little more than a natural market correction. The extremely high cost of lumber didn't occur because of normal market forces at work. Those incredibly high prices came out of a combination of unprecedented events.
The pandemic itself was the first unprecedented event. Anything that affects societies on such a grand scale is difficult to predict and even more difficult to prepare for in a meaningful way.
The second unprecedented event was the mass shift to remote work. Businesses across the nation had no choice but to let their workers do their jobs remotely. Otherwise, those businesses would largely have ceases to exist at all.
Workers who normally spent 40 or more hours a week at work, plus an additional 5 to 10 hours or more commuting suddenly weren't commuting anymore.
Homeowners found themselves with a lot of extra time on their hands. Many of them put that extra time into DIY projects.
Supply Chain Disruption
Global disruption in the supply chain also contributed to the unnaturally high cost of lumber. Supply disruption in an industry or a nation happens from time to time. Supply chain disruption in every industry, in every nation, at the same time was an all-new situation.
All of these unnatural market conditions drove unnaturally high pricing for lumber.
Return to Normal-ish
You can attribute the drop in prices at least partially to some of those conditions reverting to something like a pre-pandemic norm. While the pandemic is still a reality, the harsh quarantine and stay-at-home orders have largely disappeared in the U.S. and many other nations.
That let businesses, including lumber businesses, get back to pre-pandemic levels of productivity. Those increased productivity levels eased the demand on lumber.
The easing of restrictions also prompted a semi-successful return-to-office approach. While many workers still resist a full return to office approach, a healthy percentage of the population now commutes to work at least a few days a week. Some are back at their day jobs on a full-time basis.
The global supply chain hasn't fully recovered, yet. A variety of problems still plague the supply chain, such as:
- Dock worker shortages
- Backlogged ports
- Truck driver shortages
- Disrupted routes overseas
Even with these ongoing issues, the supply chain has improved and likely will continue to improve over time.
The Lumber Price and You
The lumber price can have unexpected consequences for a DIY home improvement project and a construction company project alike. The higher lumber prices rise, the less tenable those projects become. Even worse, unpredictable prices can make project planning or estimated costs all but impossible.
With the recent lumber price crash, though, lumber costs have returned to approximately their pre-pandemic prices. While a tough blow for lumber businesses, it's also likely a return to normal market conditions.
Silvaris specializes in bulk construction materials, including lumber. For more information about our products, contact Silvaris today.
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