July 2022
Anyone associated with construction and the building trades will tell you that the cost of material associated with construction has gone up, because it has. For new home construction and even significant remodels, wood is the biggest materials purchase that customers buy via their respective contractors and hence, the price of lumber has become the industry bellwether.
Lumber and wood products used in the United States, by the way, come mostly from two geographic regions: the American Southeast (Georgia, Alabama, Virginia etc.) and the Pacific Northwest, especially in Canada’s British Columbia.
Lumber and wood prices spiked in Sonoma County in 2018 as rebuild demand from the Tubbs Fire impacted the supply, then settled down to more traditional pricing and then rose dramatically in late summer of 2020 when the early rounds of the pandemic shut down lumber mills in Canada. There was never really a shortage of wood—there was just a disruption in the supply chain that makes raw timber into usable lumber.
After lumber prices settled down again, since the beginning of this year there has been tremendous volatility in not only lumber, but all building materials and suppliers. So much so that the CEO of the National Association of Home Builders (NAHB) recently told a television reporter that on average building supplies are up 19% from a year ago and the price increases have caused speculative homebuilders to not price their finished homes for sale until construction is complete and they have reliable data on the actual cost to build each home.
Back home in Sonoma County, just go to Home Depot to buy a few 2 x 4s or a sheet of plywood and you’ll know what we are talking about.
The Price of Lumber
It has been on a rollercoaster. In March, the cost per thousand board feet reached an industry high, at $1,464 per foot, according to MaterialsXchange, a web-based platform for sellers and buyers of wood products to negotiate and trade building materials, particularly lumber. Shortly afterward, prices dropped to $874 then rose to break $1,000 again. More recently, a different data point –the six months of lumber futures index, is putting the price per thousand board feet at $555.90 based on projected lower demand caused by a slowing economy and fewer home sales.
However and so far, the large public homebuilders such as Pulte, D.R. Horton, Toll Brothers and KB Homes, which are also the biggest consumers of wood products and lumber, have not pulled back on any of their respective master-planned communities and infill projects because the supply of new homes in the U.S. is short between 1.5 million homes and 3 million homes, with estimates varying by source.