Spikes In Lumber Prices | What Does It Mean For Independent Contractors?
The Highest Trending Topic?
Arguably, one of the highest trending topics we are seeing as we move through the second quarter of 2021 is the housing market. The cost of homes and lumber have hit a record high and supply for both remains far behind demand. And the folks who are suffering the most are first-time home buyers and independent home builders. The future is uphill.
Many of the experts claim that price fluctuations we’re seeing around housing and construction find their roots in the market crash over a decade ago. At that time, the market was oversupplied with materials. The bust caused alarming numbers of sawmills to shut down and never come back online again.
The Pandemic Strikes
Then COVID hit. The sawmills that were operating faced the same challenges as every other business when it came to health regulations and restrictions around the workplace. Lay-offs, furloughs, suspension of services, supply chain shutdowns. Once again, the mills were producing less and less lumber.
Post-COVID Demands & Prices
Now, we are seeing a massive rise in lumber demand after the Pandemic and the industry isn’t prepared to deliver. The numbers are alarming for the average homebuyer and independent home builder.
Homes are costing, on average, $30K – $40K higher as referenced by a market analysis from the National Association of Home Builders (NAHB). Some analysts in the market are claiming that these price hikes aren’t sustainable.
Many believe that, at some point in the near future, passing along higher costs to the consumer for building and buying will cause a plummet in demand.
Hard Numbers To Consider
Energy costs, lumber costs, drywall costs, steel production, and supply chain costs and bottlenecks, these all are heavy contributors to the current state of affairs. Here are some hard numbers to reference and consider from a market study conducted by the NAHB.
Notice that supply and demand for lumber is not the only variable at play when it comes to the reasons behind this current spike in construction costs and home buying.
- Prices paid for softwood lumber (seasonally adjusted) rose 5.3%, setting a new record high for the second consecutive month. Lumber prices have remained extremely volatile since the 88.5% increase between April and September 2020. Since falling 22.9% between September and November, the softwood lumber PPI has risen 42.6%.
- In addition to nominal price movements and tariffs on Canadian lumber, cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar. Not only has the USD weakened 13.6% since March 2020, it has fallen 4.5% since lumber prices began rising again in November. – National Association of Home Builders
- Drywall – Prices paid for gypsum products increased 2.1% in March, more than offsetting the 1.3% decline seen in February. The PPI for all gypsum products has increased 6.3% over the past 12 months while the index for gypsum building materials (e.g., drywall) is up 6.6%.
- The index for inputs to residential construction, including food and energy, also increased over the month (+3.2%) as energy prices climbed 5.9%.
- Steel mill products prices increased by 17.6% in March, surpassing the previous record high set in 2018. Additionally, the month-over-month percentage increase set a record high for the second month in a row. Steel mill products price volatility is greater than it has been at any time since the Great Recession.
After you finish reading this article, visit the NABH website below to learn more.
Referenced from National Association of Home Builders’ “Eye on Housing” https://eyeonhousing.org/2021/04/building-materials-prices-rise-across-the-board-in-march/
Making Matters Worse
To compound the challenges faced by independent home builders and first-time home buyers, we continue to see a surge in demand for renovations and expansions in existing homes. And fulfillment for these current home improvement projects is also well behind the curve.
This makes the challenges two-fold for the independent contractor:
1) Find a way to fulfill the renovation demands of existing homes.
2) Find a way to procure lumber, supplies, and the labor force to build new homes.
What This Means For the Independent Contractor
Many contractors have been forced to pass along the high costs of material to their customers with higher prices for home improvement services and constructing new homes. And there appears to still be higher demand than supply will accommodate.
This is putting major pressure on builders to deliver on services and materials, even when neither are available. In many cases, the lumber needed to finish a project can’t be found and construction projects are being halted.
Independent contractors who don’t enjoy the scaling advantages of bulk buying and through-put like larger construction companies are really beginning to experience the burden.
Contractors are pr-ordering lumber for jobs and pressuring the suppliers to guarantee the prices for extended periods of time. Builders are also looking at bidding prices for materials from job-to-job and creating clauses in their contracts to adjust their fees if lumber prices surge during the buying process.
There are increasing reports of building projects being delayed or canceled due to shortages in materials. Also, projects are being shut down when the buyers are unable to cover the extra costs. Slabs are being poured for foundations with no immediate plans to begin framing the buildings.
One theme surfacing quite often is that these trends and standards for doing business don’t appear sustainable. Builders and buyers alike are looking forward to the market correction, but when the turnaround will happen is hard to predict.
An Expert Team On Your Side
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Let’s Use Our Expertise!
We’ve worked with businesses of all sizes for over 40 years and our winning process delivers results that our clients appreciate. If you have any questions at all, feel free to reach out to our team at any time during regular office hours. Auction Masters is here to help you get the highest value possible for your equipment.