Over the past two years, walking through the lumber rack at a local home improvement store elicited shaking heads and murmurs about the way things used to be. Throughout the Covid-19 pandemic, lumber prices rose to almost four times their pre-COVID prices. And while these prices have changed the landscape of the home improvement, home building, renovation, and real estate industries, things are changing once more: Lumber prices are decreasing.
But when can consumers expect to see the price drop reflected in the aisle with 2x4s and plywood? And what does it mean for those industries so affected? Keep reading to find out.
What Caused the Spike?
Before discussing the falling prices, it’s important to note why they jumped during the pandemic. And the factors are many:
- Lumber production companies reduced production or closed due to local regulations regarding the pandemic, diminishing the supply.
- Many lumber producers believed the demand for lumber would plummet due to suspected construction slowdowns.
- DIYers forced to stay home undertook renovations and projects at incredible rates to pass the time, purchasing lumber at higher rates than expected and increasing demand.
- People fleeing cities for wide-open spaces were building new homes and renovating fixer-uppers.
All of these factors combined to increase the cost of lumber from pre-pandemic levels of just over $400 per thousand board feet (the unit of measurement used for wood) to over $1,500 in early to mid-2021, according to Statista. These prices fluctuated back and forth before reaching the 2022 high of around $1,300 over the early months of 2022.
Lumber Costs Impact Building Costs
The National Association of Home Builders estimates that 9 out of 10 single-family homes built in the U.S. feature wood-framed walls, ceilings, floors, and roofs. With the average cost of 1,000 board feet spiking up to four times pre-pandemic levels, it’s estimated that the average cost to build a home jumped over $18,000. Considering that the framing package for the average single-family home cost between $30,000 and $40,000, this is a significant jump.
It wasn’t just new home building, though. Structural renovations, DIY projects, and other uses for framing lumber, hardwood, and plywood skyrocketed in cost.
Rate Hikes and a Slowing Housing Market are Squashing Prices
While the sudden spike in prices may have been historic, the cost of lumber is now starting to decline. With the federal government’s goal of slowing inflation came higher interest rates, which in turn priced some homebuyers out of the market. Homes they could once afford are now out of their price range, leaving more inventory on the block and lessening the need for new construction.
With the relative slowdown in the real estate market, supply is finally beginning to match demand. Wood isn’t flying off the lumberyard shelves like it once was. Without the insatiable demand for lumber, prices will start to drop—though it may be a while before the end consumer sees it.
Near Pre-Pandemic Prices are Possible—But Not Lower
While the lumber prices are dropping, they aren’t in freefall. Experts expect lumber prices to decline gradually over the next few months. As the prices stabilize, they should land between $450 and $600 per thousand board feet, which is still more than the cost of lumber two and half years ago, but a far cry from the $1,500 price per thousand board feet. As of the time of this writing, it’s hovering around $646.
What’s the Effect on the Homebuilding and the Real Estate Market?
It might seem that there will be a direct correlation between the falling lumber prices and the price of building new homes dropping, but that’s not the case—at least not yet. The number of project starts far outweighs the number of project completions at this point, which means that lumber is still in demand for contractors. But that won’t last forever.
Lumberyards are beginning to cut prices and production as materials are starting to pile up. As higher interest rates stabilize the market and more projects come to completion, the demand for that lumber should begin to fall off.
Also, it may be too soon to tell how lower lumber prices will affect the real estate market. Despite the higher interest rates, housing is still in relatively high demand across the country. If the number of project starts slows to match the rates of completion, there will be fewer available homes on the market. This could insulate the inflated prices of existing homes. Those insulated prices coupled with higher rates could make it even harder for first-time home buyers to purchase.
What Does Falling Lumber Prices Mean for DIYers and Home Improvement?
Regarding DIY and home improvement, it may be a while before consumers see lumber prices actually bottom out and stabilize. While the average cost of 1,000 board feet may be dropping, those costs have to pass through several stops in the supply chain before it hits the shelves of lumberyards and home improvement stores.
Like Many Things, Only Time Will Tell
If there’s one thing that the past few years have taught us all, it’s that things can change quickly. While prices are starting to lower, only time will tell how far they will drop, or if another global crisis will cause another spike. Even if they don’t hit pre-pandemic levels, builders and DIYers will agree: Falling lumber prices are a good sign for the future.