How does the cost of lumber impact local contractors?

Builders—especially those in the residential market—have watched daily lumber prices creep up (and sometimes skyrocket), with prices peaking at $1,733 per thousand board feet in 2021. Tumbling 65% from their highest mark, the national cost of lumber is now sitting around $600 per thousand board feet, depending on the region.

How did we get here and what do lower prices mean for contractors? Let’s answer some questions.

• Why did lumber prices climb so high to begin with?
• When will lumber prices stabilize?
• Which cities have the lowest cost of lumber?
• How will lower lumber prices impact residential contractors?

Why did lumber prices climb so high to begin with?

Lumber prices are falling fast, but why did they skyrocket in the first place? Can we blame a pandemic? Partially.

Global lumber companies began stalling production in 2020 as they faced uncertain housing markets and transportation fiascos in trucking and rail. When mortgage interest rates declined to their lowest levels in decades—and thus trading futures rose in tandem with housing starts—lumber production couldn’t meet the sudden peak in demand and material prices. Other raw construction materials, like glass, aluminum, and copper, also saw price fluctuations; but with lumber’s structural importance in the housing market, a financial bubble expanded.

When will lumber prices stabilize?

Lumber prices are forecast to settle over the next six months in the $450 to $600 range, with enough pent up housing construction demand to keep prices from plummeting or crashing the lumber market. Supply chain complications are also beginning to resolve as trucking, rail, and shipping freight are able to deliver lumber to the highest areas of demand. While inflation will still keep the cost of lumber (and the gasoline needed to ship it) above pre-COVID numbers, it looks like the highest lumber prices of the year are behind us.

Which cities have the lowest cost of lumber?

According to the 1build database, we are seeing the lowest lumber prices in these areas.

1build data pulled June 2022 for 2x4 16’ Douglas Fir.

How will lower lumber prices impact residential contractors?

Residential inventory, including single-family and multifamily homes, is still historically low. Even with some demand waning due to higher interest rates, there is still a strong need for home renovations and new residential construction.

According to the National Association of Home Builders (NAHB), apartment construction growth is far outpacing single-family building in all regional geographies. “Low rental occupancy rates and rising rents give multifamily developers confidence to continue building despite rising costs for land, labor and materials,” said NAHB Chief Economist Robert Dietz.

Some contractors are also looking to lock in low lumber rates for larger upcoming projects. Others are creating variable rate contracts to ensure the delivery of materials before the price is negotiated, betting on lower rates in the future.

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