It’s been a crazy year for all of us, and the building industry has been faced with its own complications!
The global shutdown in late March of 2020 was just the starting point for the issues to arise over the course of the summer. It caused supply chains of all sorts to collapse, and lumber was one industry that has been severely impacted.
Pretty shocking, right!
Let’s quickly recap what drove up the cost of lumber in the first place, and then we can shift and discuss when and why we expect lumber prices to drop over the upcoming months.
Here’s what we’ll cover:
Recap: Why are lumber prices so high?
The reason lumber prices skyrocketed to astronomical rates in 2020 can be explained using fundamental supply vs. demand economics.
Demand for lumber increased dramatically during the summer months of 2020 as interest rates for home mortgages and new construction financing fell.
Adversely, lumber facilities nationwide were forced to cease operations due to the novel coronavirus pandemic and have had trouble rebounding from time and production losses.
Take a look at this simple graph as it helps explain the price of lumber during a more typical year compared to the cost of lumber in 2020.
Although this graph does not involve any numerical data, we hope it helps paint a clearer picture. To learn more about the factors that drove the increase in supply and shortage in demand, you can check out our recent article, “Why is the Price of Lumber so High?”.
Now that we’ve got that covered let’s look into the future and discuss when lumber prices are expected to drop.
When we expect to see the price of lumber decline
Since the last time we touched on the subject in early September of 2020, the cost of lumber has already started to decrease substantially. It has dropped from $948 per thousand board feet in September to now $565 per thousand board feet in early November.
A few key factors have influenced the recent decline in lumber prices. Today we’ll focus on seasonality because it is the most significant factor to impact the lumber industry.
Spring rolls around each year, and builders nationwide break ground on new construction projects. Adversely, when winter rolls around on the heels of fall, most projects have been dried in, and new construction comes to a halt. This slow period over the winter gives lumber suppliers the ability to catch up on production before the upcoming busy season.
Lumber suppliers have been overwhelmed this year, with no opportunity to catch up with the increasing demand. The onset of colder temperatures and early winter storms in the northern and western US has been the lumber industry’s first sign of relief.
As significant projects and seasonal remodels begin to wind down in colder regions, more time and resources will become available to catch up with demand. If we touch back to the graph from Market Insiders mentioned previously in the article, you can gauge the impact seasonality has had on the industry over just the past two months.
While we’re still in the late stages of fall and winter hasn’t yet set upon us, we can only expect to continue to see a downward trend in lumber’s price. That being said, if you take a quick look over at the seasonality graph for lumber futures from The Robust Trader, you’ll notice that there is a short window before demand will inevitably climb again.
Summer and Fall 2020 was an exceptionally busy season for builders due to numerous factors discussed in our previous post, and so far, it looks like 2021 is shaping up the same way. Therefore, lumber suppliers may be able to catch up, but it’s inevitably going to be another hectic season ahead.
So, while we predict lumber prices to drop to a more stable rate, it’s tough to say precisely where they will end up come Summer 2021.
Here are some other’s opinions on when and why lumber pricing might drop for your reference:
Here’s Our Advice to Mitigate Costs
Our advice to anyone interested in building this upcoming season is to focus on your structure’s architectural design now rather than waiting until the last minute! This will allow you the time to get your plans in for engineering and permitting before the Spring of 2021.
With so much fluctuation in the cost of lumber, you want to be able to lock in pricing at the optimal moment rather than waiting until the middle of the 2021 season. Pre-engineered plans allow you to do just that.
With a set of plans and construction documents ready to go, you’ll be able to work together with your project manager to secure pricing once it is expected to have decreased to a more stable rate in Early 2021. Your plans can then be submitted to prefabrication, and your material package will begin to take shape.
That being said, there’s no need to cross your fingers and wait for prices to plummet if you’re ready to get started today! We understand that for some, nothing can hold you back from building the home of your dreams. For others working within a more limited budget, focusing on the design now and prefabrication later may be in your best interest!
Interested in Learning More?
Give us a call or fill out the short form below with any questions and one of our project managers will be in touch to start the conversation about how we can help you focus on design and engineering today for better material pricing come early 2021!