Prices are up in almost all categories right now. Gas prices, food prices, and lumber prices have soared. Every category mentioned above affects the typical American family, but lumber prices directly affects the real estate market. They reached an all-time, historic high, which is a 340% rise in prices. According to CNBC on average, the current lumber prices have increased the cost of a new build by $36,000! That is quite a difference!! So let’s look at the root causes of the massive increase, the recent dip in lumber prices, and what experts believe will happen soon.
Causes of the Massive Increase:
You might wonder what is causing the price of lumber to soar. Fortune posted a great article describing the causes and explaining them in a way anyone can understand. Lance Lambert writes, “this historic lumber shortage was spurred by a perfect storm of factors set off during the pandemic.” He goes on to explain that sawmills cut production because of the pandemic. As people were home because of COVID, many Americans turned to D-I-Y projects, which usually requires lumber. Therefore, the supply of lumber could not meet the demand for lumber.
Recent Dip in Lumber Prices:
Fortune also celebrated the recent decrease in prices in their article, Lumber Prices Finally Dip. Even though the price of lumber is still up 300%, they are hopeful that this is just the beginning of a market correction. They cite “Economics 101” as the reason for the drop. It is a simple case of supply and demand. Sawmills are now increasing production.
What Experts Believe Will Happen:
One of the results of such high lumber prices is that new home builders have significantly halted construction. They are waiting for prices to correct. At the same time they have understandably charged more for the construction they undertake. With the recent dip in lumber prices, experts believe that “the market has tipped.” “‘It’s looking more probable now a more serious pricing correction in the cash market for lumber is gaining steam as demand cools, and supply incrementally improves,’ Dustin Jalbert, a senior economist,” states.
Hopefully the prices will correct and be more like we are used to seeing. Then more D-I-Yers can continue improving their homes. More home builders will continue to construct new homes. More home buyers will be able to afford to purchase a new home. The high lumber prices have truly affected the housing market. At least nobody is referring to the price hikes as “our new normal.”