Why lumber is getting more expensive

if you've tried to buy wood in the past six months you may have noticed something pretty crazy the price of lumber has gone out of control and in this video i'm going to talk about why now you're right in guessing that it has something to do with the coronavirus and the pandemic but the answers are actually a lot more nuanced and interesting than that so stick around and i'll explain to you what's going on now this past summer i worked on a couple of different projects that required me to go and buy some lumber so i went out at different times throughout the summer to the hardware store to price out what lumber i needed and just see how much it was going to cost i went first in may and it seemed pretty reasonable at the time but i went back a couple times after that and was just amazed at how expensive the lumber had become and not just that but the supply of lumber was down quite a bit things were hard to find and what was left was warped and and just terrible i knew that that all of this must have something to do with covid but the true answers were actually much more interesting than that and in this video i'm going to show you what i learned in addition be sure to stick around to the end where i'm going to give you my thoughts about where i think lumber prices are headed in the future when i was in college we studied economics and one of the things that we used as a tool are called demand curves i think everybody intuitively understands the relationship between supply and demand but these demand curves are are really helpful in kind of visualizing what's going on and helping us understand the relationship between supply and demand and the price and how all that operates and works together so it goes something like this when markets are operating normally and supply and demand are steady then the price is also steady but if something were to come along and change that say a huge influx in supply or a huge restriction in supply then the price and that balance can get out of whack the price can go way up or way down depending upon what's going on so in the case of lumber there have been huge increases in demand as well as huge restrictions on supply and both of these actions which are being caused for a bunch of different reasons are acting together to make the price of lumber go way up first let's talk about demand now because of coronavirus a lot of people are staying home most people in fact and really since since march up until now uh you have people that aren't going out to eat as much you have people that are not going on vacations they've canceled all their plans nobody's going on any cruises that's for sure so the people that are sitting at home that still have jobs and they're still working and still bringing in money have nothing to do and so a lot of people have decided that they want to beautify their home they've either decided to do work themselves this is diy or they've hired professionals to come in and build out their basements or add on a new deck make a backyard patio or whatever and so all that activity is really pushing up demand for lumber especially for lumber that's been treated for use outdoors in fact when i went to the hardware store in june to buy some lumber for some of my outdoor projects i found that there was almost no treated lumber even available so it wasn't even a matter of the price it was a matter of supply i couldn't even get it another thing that is leading to an increase in demand for lumber is the housing market now while we're in a tough economy right now with covid and the effects that have taken place since then has it really affected housing now there was a huge drop in housing starts in april of this year right after a lot of those restrictions took place but since then housing starts have steadily increased and we're on track right now to have one of the strongest housing markets in in over a decade really since the financial crisis of 2008 and so all that demand for housing is really using up a lot of the lumber supply that's available and driving up the price now that demand that has come from the housing market as well as the demand that's come from uh home improvement people either professionals or diyers have really led to an increase in demand for lumber of 174 percent over this past year and that is just a crazy amount of increased demand but now let's talk about the flip side which is also supply so on the supply side because of covid again there have been tremendous decreases in the amount of lumber that lumber producers were able to produce it was different in every state some places lumber mills were required to shut down for a time which meant that they couldn't process their lumber and that had a doubling effect for traded lumber because it not only had to be milled but also had to be treated with chemicals and so that restriction in supply really became a challenge as producers were trying to get the supply to the demand now covet has also presented a lot of challenges for international supply chains at my local hardware store here in pennsylvania i have purchased lumber that has been marked as a product of sweden and lumber is shipped all over the world so it could come from europe come from canada and with kova restrictions and and the challenges of travel and shipping between different countries or the delays even that has caused some challenges in getting lumber supply to where it's needed even before covid though there were already some challenges and restrictions on supply in the western u.s and western canada there has been an infestation of pine beetles now that pine beetle infestation has killed a large number of trees and reduced the stock of trees available to be cut and milled into lumber another huge challenge to supply has been western wildfires in the u.s this past summer there have been extreme wildfires in washington oregon and northern california which are all areas where a lot of lumber in the u.s building lumber is produced the wildfires have really caused two problems one they're burning up the supply and destroying trees that could be used for lumber but secondly they're also disrupting logging operations and so lumber mills that would normally be operating can't operate because the places where they would be operating are either you know covered in smoke or fire or destroyed and so that has also caused a huge restriction in supply now beyond the covert related um challenges beyond wildfires and you know insect damage and all that there is another interesting thing that's going on with the supply of lumber and that is one caused by the government now a lot of lumber in the u.s actually comes from canada and there are currently tariffs on lumber coming in from canada at around 20 so what that means is that any lumber coming in from canada is charged essentially a tax of 20 uh which then is passed on to american consumers so when you go to buy canadian lumber you're paying 20 more for that lumber than you would in canada now the reason for that is is somewhat complicated but has to do with the fact that lumber producers in the us are upset with how lumber is being subsidized in canada by the canadian government as most lumber operations in canada are actually done by the various provinces in canada whereas in the u.s most lumber is produced by private uh producers and so that is that benefits american lumber producers because american lumber is more attractive because it's less expensive than canadian lumber the challenge with that though is that it increases the price of lumber overall to american consumers and so people who are going to buy that lumber now have to pay more for it and while that benefits lumber producers in the u.s it does not benefit home builders or home buyers in fact i even found some news articles where realtors and home builders in the us were petitioning the trump administration to reduce those tariffs or eliminate those tariffs so that lumber would be less expensive and they would be able to purchase it now most of what i've been talking about here so far it really relates to softwood lumber and this is the type of lumber that most homes in the us are built out of it doesn't really apply to hardwood lumber hardwood lumber in the us is mostly used to build furniture and for for wood flooring and those sorts of things hardwood lumber market actually hasn't hasn't been changed much by uh covid or by the increase in demand there's a few different reasons for that as well one thing for example in the state of pennsylvania when the covert restrictions first came about there were only certain industries that were allowed to operate that were considered essential lumber mills and and lumber operators were considered essential and so a lot of those continue to produce lumber now a lot of the demand that's coming from di wires and people making home improvements didn't translate to hardwood lumber because a lot of that that work was either being done on the outside of the home and there are actually a lot of options that have become popular recently for wood flooring like laminate and other things that don't actually take hardwood lumber and so the demand for hardwood lumber has remained relatively steady and so have the prices so what does the future hold as we get into the winter months some of the construction diying and all that is going to slow down and that's going to decrease demand also some of the lumber producers are going to be able to beef up their supplies so you'll see some of the supplies be replenished the lumber mills will be able to catch up the mills that do the processing for treated lumber will be able to catch up and so next spring when a lot of buildings start starts to pick up again i think you're going to see those prices come down but they're not going to go back to what they were before and there's a few different reasons for that i think one is that consumers are getting used to paying the higher price and it's going to be a challenge for producers to go back there's not going to be enough competition for those producers to drive that price down also the producers are going to try to restrict that supply as much as they can to get actually more more money out of the lumber that they do supply in my view the only way that we're going to see a really huge decrease in prices is if demand completely falls off for say housing so if the economy tanks you know that's a possibility because of covid if something terrible happens then you're going to see that demand just plummet and that is going to impact the supply as well as the price the other thing that could happen is if uh those tariffs are eliminated um that could happen who knows so if those tariffs are eliminated then that would uh allow for cheaper canadian lumber to come into the u.s and that would drive prices down that would be a challenge for u.s lumber producers who are already being affected by all the other things that we talked about but that could overall decrease the price and lead to more supply in the us so what crazy lumber stories do you have did you have to punch out some diy at home depot in order to get the last two by four uh did you have to you know resort to some craziness in order to get the lumber you needed for your projects let me know in the comments tell me your story i'd love to hear it so that's all for this video i hope you enjoyed it i hope you learned something i hope you found it interesting if you do disagree with anything i've said if you do have any other opinions feel free to leave a comment i'd love to hear what you have to say and of course if you did like this video be sure to give me that thumbs up be sure to subscribe to my channel for more great content like this and we'll see the next one you

Channel: DIY with Dave

Views: 473,139

Rating: 4.8450184 out of 5

Keywords: do it yourself, home renovation, lumber, sawmill, why is wood so expensive, why is lumber so expensive, wood, wood prices, lumber prices, saw mill, timber, timber prices, why is timber so expensive, why is timber so costly, why is wood so costly, why is lumber so costly, supply, demand, supply and demand, economics, demand curves, woodwork, woodworking, carpenter, carpentry, economist, pressure treated, wood prices going up, wood prices going down, lumber prices 2021, high lumber prices

Id: pTV_oQj5S4s

Length: 11min 32sec (692 seconds)

Published: Sat Nov 14 2020

Reddit Comments

[u/Gr8scotty2k]

Good video, couple of comments.

I would expect lumber prices to drop significantly by Winter. I have heard directly from major lumber mills in NW that are adding shifts which will significantly add supply.

Wildfires will not, in the short term, constrain supply as much of the burnt wood is being processed by mills while the fiber is still good. Longer term there will be log supply issues in Oregon as nearly all of the log supply comes from privately owned tree farms

Suppliers in Canada can’t add the tariffs to the price of lumber. the price of lumber is dictated by markets. If the prices aren’t high enough and cash flow is impacted then supply may be reduced. We saw numerous mills in Canada reduce supply in 2018 and 2019 (some resulted in permanent closure of mills) due to negative profit margins.

There is currently significant supply of wood being added to markets in Southeast region of US, my estimate is about 20% increase in SE region supply. It will take time for this supply to materialize. I was involved in two major sawmill startups in NW region of US and it took a full 2 years for those mill to reach target production rates.

It will be interesting to see if the new work from home shift results in a higher level of demand for lumber, my guess is that it will.

Would also expect to see higher level of demand to come from Cross Laminated Timber (CLT) demand, though the work from home shift may reduce demand. CLT is primarily used in buildings that are 5-10 stories high and this product displaces concrete and steel. CLT materials currently cost more than concrete and steel but also may allow faster construction of buildings.