– Why is Lumber so Expensive –
When you go to your local hardware store, the high prices of lumber may surprise you. Even little pieces might command a high price.
Given that some types of lumber were formerly extremely cheap, the price increase may be perplexing.
Why are Lumber Prices Rising?
Ordinary institutional investors (as well as many Americans eager in extending their homes or installing a deck) are perplexed.
As, to why lumber prices have risen in 2021, especially while raw timber has not. (“Lumber prices rise, but logs remain dirt cheap”).
Indeed, lumber prices have reached all-time highs, possibly four times what we previously regarded to be “trend” values.
So, what’s the deal with the skyrocketing lumber prices? And why haven’t timber prices, particularly in the United States South, followed suit?
To Begin, Why Did Lumber Costs Skyrocket?
Lumber prices fell in 2005, as housing started declining from a record 2.2 million that year.
They fell following the 2008 Global Financial Crisis (GFC) and only slowly recovered from the 2009 lows.
A modest increase in 2018 was swiftly snuffed out by manufacturing difficulties before COVID-19 arrived.
Although the timber sector was deemed “vital,” sawmill owners battled to maintain production in the spring and summer of 2020.
About, 35% of North American lumber capacity was reduced in April 2020.
The industry’s strategic thinking was that demand for lumber would collapse because of the lengthy closures and restricted economic activity.
These issues prompted sawmills to reduce their lumber stocks.
Why is Lumber so Expensive and Demand for New Housing
Housing starts also hit their highest level since September 2006 in November 2021.
Americans migrate in large numbers from the Northeast to the South and Southwest, and pandemic-induced shifts from urban to suburban living.
Have boosted demand for new housing to levels not seen since the mid-2000s, Fritz said.
Because lumber is the main input in residential buildings, accounting for approximately one-sixth of the cost of a house, demand has increased.
Expect timber prices to remain high for the foreseeable future, with tariffs in place and housing demand expected to outstrip supply for some time,” Fritz added.
The United States uses lumber to construct over 90% of its single-family homes, a much larger percentage than the rest of the globe.
In the United Kingdom, for example, only approximately 20% of single-family homes are constructed with lumber.
This trend will not reverse soon, according to Fritz. Because the two main substitutes steel and concrete have also suffered rapid price hikes in recent months.
Lumber and Timber Prices have Historically Been Related
Following the GFC, distinct market situations in the South and Pacific Northwest.
This resulted in divergent developments in the lumber and wood markets.
Fell after the peak of house demand in 2005. However, in the South, the GFC exacerbated downward pressure.
And saw-timber prices have been low ever since, reaching an all-time low in the third quarter of 2020.
Since 2000, real sawlog prices have declined at a rate of 1.0 percent each year on average.
Log prices for the two main species in the Pacific Northwest Douglas fir and “white woods” (mainly Western Hemlock) have largely tracked lumber prices.
For the pre-GFC recovery phase, the post-recovery period, and, rather tautologically.
The entire time since 2000, the correlations between lumber prices and log prices are 0.65.
Clearly, conditions in the Pacific Northwest differ significantly from those in the South.
But what accounts for the disparities? What are the ramifications for timberland investors, moreover?
To answer this question, we must first examine the dynamics of lumber and timber demand.
Why are Southern Timber Prices Still Low?
To summarize, Southernwood prices cannot rise until the harvest-to-inventory ratio returns to its steady-state level of roughly 8% every year.
Either harvest levels must rise or timber stockpiles must fall. Inventory will rise as long as harvests fall short of expansion. Today’s under-harvest creates tomorrow’s inventory surplus.
They project harvests to remain below growth for a long time due to the delayed deployment of additional sawmill capacity in the South.
Furthermore, for timberland owners, capacity expansion is a mixed blessing.
With more capacity at individual mill sites, fewer buyers for timber are available.
The industry’s concentration decreases competition for individual timber sales.
For each unit of increasing lumber demand, the extra capacity means less additional timber demand.
This latter aspect has had a significant impact, with the least efficient mills requiring as much as six tons of logs per thousand board feet of lumber.
Prior to the Great Recession, the best new capacity may require as few as four tons.
Factors that Could Decrease the South’s Timber Inventory
Given that increased harvest levels alone would not restore balance the only other option is to reduce timber stockpiles.
However, this will only happen after many years of high demand, the region has been under-harvested for at least 15 years.
Thus a similar period of robust harvests is likely to be required to restore equilibrium.
Other factors, such as drought, insect and disease attacks, fires, and windstorms particularly.
The more strong coastal hurricanes can diminish the Southern timber inventory.
As landowners strive to recover the damaged timber, such calamities naturally increase supply in the near run.
Also, Climate-related inventory decreases, and natural disasters don’t help timberland owners make more money.
Here are a Few Reasons Lumber is so Expensive
1. Limited Resource
Lumber is another scarce resource. While replanting can assist reduce deforestation, the rate at which trees grow is slower than logging.
Some types of lumber, such as bamboo, are more plentiful. This is due to the fact that bamboo grows quickly.
Bamboo is easier to replant and maintain the status quo than other species of wood. Any form of limited resource comes at a higher cost.
This is because there is a limited quantity. Because supply cannot meet demand, prices rise.
If deforestation continues unabated in the absence of sustainable strategies to offset it, the price of lumber will only rise.
Lumber will become increasingly scarce. However, Lumber is expensive since the world’s harvestable trees are limited.
Before they can sell lumber on the floor, they must go through various processing procedures.
The logging company either sells the logs as is to a lumber store that can process them themselves, or they process them for them.
When it’s finished, the company can ship it to the lumberyard.
If the lumber store handles its own processing, it will need the necessary instruments.
These are enormous and dangerous machinery that should only be used by specialists.
Because it takes a lot of energy to run the machinery, the lumber company bears a lot of costs to process the lumber.
These machines are expensive and require regular maintenance to function properly.
All of this contributes to the end process of lumber.
The log itself isn’t as pricey as the lumber it produces.
They must be compensated for the labor they put into the lumber. Lumber is pricey due to the processing it goes through. Some businesses will even employ a third party to handle the procedure.
To process a log, the wood must be cut in many stages.
Because construction workers and furniture makers require varying lengths and widths of lumber, each log is cut into different sizes.
It may be washed or undergo additional procedures to further prepare the lumber for construction use.
3. Shipping Costs
The region from which lumberyards and hardware stores obtain their lumber also influences its price.
The further the retailer is from the source of logging, the higher the price. A lot of timber originates from South America’s Amazon.
Because this sort of wood travels a great distance to reach stores in the United States, it commands a high price.
Logging businesses must first transport raw logs to a processing plant.
This necessitates the use of a specialist truck intended for log hauling.
Because logs are so heavy, the truck is also heavy-duty.
Because the trees are from deep in the Amazon, they must also be able to drive on unpaved roads.
The expense of operating and maintaining these trucks is substantial. After the logs have been processed, they must be delivered to the store.
In some circumstances, this may imply that they are traveling by ship. To store its lumber, the company will need to rent a storage container.
That is pricey. Those who ship their logs by road will also incur costs. Fuel expenditures, driver compensation, and other expenses incurred while on the road can quickly pile up.
The greater the distance between a store and the logging firm and processing facility, the more money it takes to reach the store. The weight of lumber is likewise considerable.
Shipping it is more expensive, as it is with everything heavy. Because the lumberyard or hardware store has taken on a high level of responsibility.
4. Bottleneck Supply Problems At Ports
The problem at several ports in the United States is a newer issue that is driving lumber prices to climb.
Because of a paucity of storage containers, ships are taking longer to leave the port with the products they require.
There are also fewer crane operators operating the cranes used to offload containers from ships. Because there are fewer ships that can depart the port, there are also fewer ships that can enter the port.
This signifies that shipments are experiencing significant delays. Although dockyards have extended their hours and truck drivers are working night and day to relieve the problem, port traffic remains congested.
This affects the price of lumber in a variety of ways. The region from where lumberyards and hardware stores source their lumber also has an impact on its price.
The higher the price, the further the shop is from the source of logging. However, the Amazon region of South America provides a significant amount of timber.
Because this type of wood must travel a long way to reach retailers in the United States, it is expensive. First, logging companies must transport raw logs to a processing plant.
This needs the employment of a specialized log transporting truck.
The vehicle is especially heavy-duty because of the weight of the logs.
Because the trees come from the Amazon, they must be capable of driving on unpaved roads.
Dockworkers and truck drivers must work longer hours, thus their wages must be compensated.
This raises the cost of shipping, which raises the cost of the lumber. Also, The fourth argument is that ship personnel require additional compensation because they are working longer hours.
5. Labor Shortages
Labor shortages, whether caused by COVID-19 or strike workers, impact lumber prices.
The COVID-19 epidemic of 2020–21 had several effects on the lumber sector.
This is in addition to a rise in demand for lumber to finish residential renovations. People had more time to work on home projects because they worked from home.
Also, Some even desired to convert a portion of their home into a proper workplace.
With more people wanting lumber and a limited supply, the price of lumber increased.
Even though many industries and logging enterprises have reopened, the labor shortfall that produced the gap continues to affect lumber prices.
This is because providers are attempting to fill the hole left by their absence. Workers could not fell trees. The factories could not process the existing logs.
Stores that were forced to close lacked the inventory, and personnel to keep the lumber stocked.
This hindered the supply of lumber, causing the price to soar. That hole is tough to fill because there is still a demand for lumber.
It shows that supply is straining to meet demand. As a result, the cost of lumber has skyrocketed.
Lumber is expensive because labor shortages caused by the COVID-19 epidemic reduced worldwide lumber production.
6. Treated Wood
Some varieties of lumber may be subjected to an additional processing step, which raises the price.
They frequently treat the woods used for outdoor, such as building construction and decks. This process extends the life of the lumber when it is exposed to direct water and insects.
The purpose of treated wood is for it to last a long time in situations that would ordinarily cause the wood to deteriorate. The experts accomplish this by placing the wood in a pressure chamber.
The chamber employs pressure to dry out the wood while also adding various chemicals to it.
For decks, the chemicals help to make the wood more water-resistant and pest-resistant.
They also employ water-resistant chemicals and particular compounds that can fight off water bugs. and fish for docks and other types of wood that will come into direct contact with water.
The lumber may also go through further stages to be treated for fire resistance and other resistant characteristics.
As a result, the wood is safer and can survive for years before deteriorating.
Because pressure chambers and chemicals are expensive, treated wood costs more than untreated wood.
The benefit is that you don’t have to replace the wood as frequently as you would with untreated wood. Using treated wood may wind up saving you more money in the long term.
However, treated wood is pricey at the time of purchase. Lumber is pricey if it has been treated.
7. High Demand
Lumber is in high demand. Lumber is always in demand, whether it’s for erecting a new house, starting a new business, creating furniture, or a variety of other jobs.
This kind of tremendous demand raises the price. Supply and demand essentially influenced the price of things in fundamental economics.
When there is a great demand for a product, the price rises. When a good’s demand is low, the price falls.
With an existing need for lumber, the price will constantly rise. There are times of the year when the demand for lumber is higher than usual.
The warmer months, in particular, witness a surge in timber demand because it is the greatest time to perform restoration and construction projects.
Everyone is attempting to get lumber. During the colder months, the opposite is true.
Because people cannot complete as many projects outside, the demand for lumber falls and its price falls.
Lumber is pricey because there is usually a great demand for it.
8. Rare Types of Lumber
The sort of wood you purchase might also affect its pricing. There are common and uncommon types of wood.
Common varieties of wood are easy to harvest and are frequently abundant around the world.
Here are several examples:
They are frequently utilized in building construction and other construction projects such as furniture and tools. They reserve rarer types of lumber for certain applications.
We sometimes used them to make musical instruments or artworks. Because they are scarce, they are more expensive to use.
Some examples of uncommon woods are:
Here are several examples:
- African Blackwood
- Pink Ivory
- Brazilian Rosewood
These types of wood are more difficult to come by in the wild. They also have traits that are not found in any other form of wood.
African Blackwood, for example, is naturally black wood with a stunning appearance. The average cost of African Blackwood per board foot is $100.
A single timber might cost up to $10,000. After the log is processed into lumber, the price rises to $13,000 per cubic square meter.
The reason this sort of tree is so pricey is that it grows slowly and is little.
Because timber is difficult to replenish, logging companies must be cautious about how many trees they chop down.
Inflation is the final cause of high lumber prices. Also, Inflation occurs when there is a lot of money in the system but not enough economic growth to match it.
As the price of products rises, the value of that money decreases.
This is true of lumber.
The pace of inflation will eventually fall, but it may take years.
Add this to the supply issues that lumber is currently facing, and you can expect lumber prices to remain high for another year or two.
10. Logging Enterprise
Logging firms must cut down trees in various places of the world in order to gain lumber.
Numerous issues plague the logging business, the most important of which is deforestation.
Some forestry businesses, particularly in Brazil, do not practice with much caution.
As a result, the world’s supply of wood is rapidly dwindling.
Although it is difficult to notice that it is declining because there are still many trees in the world, it is a severe concern in areas where logging happens.
Some logging companies do a better job of ensuring that the trees they chop down are replanted.
This also implies that they incur additional costs in order to conduct their job in a sustainable manner.
Because logging is becoming more expensive, they must pass those expenses on to the buyer.
The buyer, such as a hardware or lumber store, must then reimburse the cost as well. They charged a high price for it. Lumber is expensive because sustainable logging is expensive.
How to Save Money on Lumber
If you’re planning a home improvement project, you’ll probably need to get your hands on some lumber.
However, the expensive cost of lumber may prevent you from proceeding with the job.
Here are a few ideas for saving money on lumber and finally getting started on your renovation.
1. Reclaimed Wood
It’s also worth checking with your local recycling centers to see if anyone sells recovered wood.
It’s a business in and of itself, with some owners scattered across the country.
These people clean up wood from abandoned buildings or spare wood from construction sites.
The wood is normally as excellent as new, and it can be purchased at a far lesser cost than new wood.
Reclaimed wood has the extra benefit of having a lot of character.
2. Find a Reuse Store
Instead of going to your neighborhood lumberyard or hardware store, look for a reuse store.
Habitat for Humanity operates one of the most popular types of reuse stores.
These resale stores, known as ReStores, sell a variety of construction products.
This is also a charity organization, so by purchasing from them, you can help them achieve amazing things.
3. Shop Online
You can also try to obtain lumber online, whether it’s from a lumberyard with excess lumber or from a homeowner who has more wood than they need for a project.
Looking on eBay, Facebook Marketplace, and even Craigslist might help you locate some excellent deals on lumber.
It aids in narrowing your search to the precise type of wood that you require.
As with every internet purchase, there is always the possibility of encountering fraud.
Before purchasing from homeowners or individuals, you should aim to prioritize purchases from suppliers, lumberyards, contractors, and builders.
Professionals are less likely to defraud you because they must safeguard their reputations.
4. Shop at a Salvage Store
A salvage store is another type of store where you can discover fantastic deals.
This is distinct from a reuse store in that it mostly sells furniture.
These stores either gain furniture from individuals or take gifts from the public, contractors, and estate sellers.
Unlike antique businesses, which repair their commodities, salvage stores typically offer the items as-is.
This also means you can get them at a discount.
If you were looking for wood to make furniture, it’s worth checking out your local salvage store first.
You may come across a piece of furniture that you adore and be able to avoid purchasing lumber entirely.
Risks and Other Key Factors to Consider
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Financial professionals should analyze the risks associated with products or services independently and make independent decisions on behalf of their clients.
Some products and services may not be available to all organizations or individuals. Past achievement is not a predictor of future outcomes.
Also, note that economic and market forecasts are ambiguous and liable to change as market conditions, and political and economic developments change.
Changes in economic situations, currency values, environmental risks, the cost of and ability to get insurance.
And risks linked to the leasing of properties are all risks that come with owning real estate-related assets and investing in overseas markets.
FAQs on Why is Lumber so Expensive
1. WHY ARE LUMBER PRICES RISING?
Right? You’d assume it connected them to the petroleum industry!
They believe the mill capacity reductions are due to Covid. To some extent, it is.
But, given the HD racks are full, I believe it has more to do with capacity to gouge. I’ll take it all the way to the top.
That’s a good—indeed, perfect—indicator that supply is adequate. It’s because of the gouge factor.
2. WILL LUMBER PRICES GO DOWN IN THE US?
Once demand slows, lumber prices will level out. Prices will reduce as logistics improve,
but the market can never keep up with increased demand because of logging.
Prices will fall as we approach closer to summer, but there is still a chance that they could rise again if demand increases he stated.
3. HOW LONG WILL LUMBER PRICES STAY HIGH?
“Future markets show that lumber will remain above $1,000 per thousand board feet until September 2022,” Logan predicted at the time of writing.
4. WHY IS THERE A LUMBER SHORTAGE?
The primary cause for the strong demand for lumber is the extraordinary housing demand in the United States.
People desire to buy new homes, and new dwellings cause the purchase of lumber (and lots of it).
Unfortunately, experts believe they will not ease soon the housing shortage.
5. WILL BUILDING PRICES COME DOWN IN AUSTRALIA?
Following a 22% increase in residential property prices last year.
Commonwealth Bank predicts a 7% increase in 2022, followed by a 10% drop in 2023.
The National Australia Bank expects a 10% drop next year, following a 3% increase this year.
6. WILL THE AUSTRALIAN PROPERTY MARKET CRASH?
We expect the RBA to raise the cash rate by 2.15 percent by mid-2023, according to financial markets.
This tightening, which is expected to begin in May of this year, would be the equivalent of nine interest rate increases.
House prices in Sydney and Melbourne have already plateaued.
More Details on FAQs on Why is Lumber so Expensive
7. WILL HOUSE PRICES CRASH IN 2022?
Because of the Russia-Ukraine war, the property market may slow down earlier than many experts predicted in 2022.
As the Bank of England may now raise interest rates.
When interest rates rise, mortgages become more expensive, resulting in lower demand for property and cooling of the housing market.
8. WILL HOUSE PRICES RISE IN THE NEXT 10 YEARS?
Research estimates that house prices would rise by another 50% over the next decade.
Hitting £419,000 on average across the UK by 2025.
9. WHY ARE LONDON HOUSE PRICES SO HIGH?
Throughout the epidemic, regional property markets have regularly exceeded those of the capital, in part because of the rush for space during lockdowns.
But also because stamp duty had a significantly larger impact on buyer demand outside of London.
10. WHAT WILL HOUSE PRICES BE AFTER THE STAMP DUTY HOLIDAY?
The end of the stamp duty vacation is likely to result in a leveling off of demand and a return to more regular timeframes for transaction completion.
Although some predict a drop in property values, they remained high in February 2021.
Although the original expiration date of the stamp duty was approaching.
11. WHY IS LUMBER SO EXPENSIVE IN THE UNITED STATES?
Housing demand is continuing to rise, putting pressure on the supply chain.
The impact of the epidemic on the transportation networks that are used to convey the lumber is still having an influence on the supply chain.
The supply chain is still being slowed by a labor shortage.
According to new figures from the Office for National Statistics (ONS), house price growth slowed somewhat in January to 9.6 percent. Down from 10.0 percent in December,
Yet property values had risen year on year. 23rd March 2022
Also, Zoopla anticipates that prices will slow in 2022 and will end at an average of 3.5 percent in December 2022.
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