Lumber Prices: The Pandemic Rollercoaster and What It Means for Your Next Remodel

The COVID-19 pandemic reshaped many aspects of our lives, from how we work to interact socially. It also left a significant mark on consumer behaviour and the economy. Among the many products that saw a surge in demand during the early days of the pandemic, lumber stood out. As people found themselves confined to their homes, many embarked on remodelling and home improvement projects, leading to unprecedented spikes in lumber prices. But as the pandemic-era frenzy fades, the lumber market is experiencing a significant correction.

The Rise and Fall of Lumber Prices

During the pandemic, the demand for lumber skyrocketed. With people stuck at home, many chose to tackle home improvement projects. This sudden increase in demand caught the lumber industry off guard. Sawmill operators, who had initially scaled back production in anticipation of decreased activity, struggled to keep up. Consequently, the price of Western SPF two-by-four lumber, an industry benchmark, soared from under $400 per thousand board feet in January 2020 to over $1,600 in May 2021.

However, what goes up must also come down. As demand decelerated and supply caught up, lumber prices plummeted. After peaking in spring 2021, prices briefly collapsed before jumping back to $1,400 in early 2022. Later that year, they nose-dived to the $300–$400 range, where they have largely remained. While these prices resemble pre-pandemic levels, industry changes and higher production costs have caused many suppliers to operate at a loss.

The Demand Side: High Interest Rates and Housing Market Slowdown

Several factors contributed to the dramatic drop in lumber prices. The Federal Reserve's decision to raise interest ratessignificantly impacted the housing market. The average 30-year mortgage rate, under 3% just a few years ago, now sits at around 7%. High interest rates have led to a slowdown in new housing construction and existing home sales, as the prospect of higher mortgage rates deters potential buyers.

This housing market malaise poses a significant problem for the lumber industry. Residential construction, including new builds, renovations, and repairs, accounts for 70% to 75% of lumber consumption. With housing starts down 18% from early 2022 to early 2024 and spending on residential improvements down 21%, adjusted for inflation, the demand for lumber has significantly weakened.

The Supply Side: Overproduction and the Bullwhip Effect

On the supply side, producers have found themselves with excess inventory. High lumber prices during the pandemic spurred investments in new sawmills, particularly in the southern US. As a result, US sawmills are producing about 4 billion more board feet than in 2022. Additionally, lumber suppliers in British Columbia, who historically exported to China, have redirected their supply to the US market due to the collapse of the Chinese property market.

This overproduction is a classic example of the bullwhip effect, where changes in consumer demand cause largerfluctuations in the supply chain. Sawmills that invested heavily in new capacity during the pandemic are now struggling with cash-flow pressures and debt obligations, forcing them to continue producing despite low demand.

What This Means for Homeowners and Builders

Despite the challenges facing the lumber industry, there is a positive aspect for homeowners and builders. Current lumber prices make it a suitable time for those considering remodels or home improvement projects. Stinson Dean, CEO of Deacon Lumber, suggests that if lower prices haven't yet reached retail stores, they likely will soon.

"If you've been putting off a remodel for three years, a deck, a fence, right now — and you need to be watching prices—this summer will be the best time to secure materials for that in four-plus years," Dean advises.

However, it's important to note that while framing lumber prices have come down, the costs of other building materials remain elevated. This means that while some construction components might be cheaper, overall building costs are still higher than pre-pandemic levels. Homebuilders and contractors dealing with higher labour and other materials costs may not pass on the savings from lower lumber prices to consumers.

Looking Ahead

In the long term, there is room for optimism. The US needs more housing, and as interest rates eventually decline, we expect a rebound in the demand for lumber. For now, those in the lumber industry are cautious, waiting for market conditions to improve. In the meantime, homeowners looking to take advantage of lower lumber prices should consider negotiating with contractors or even purchasing materials wholesale for DIY projects.

In conclusion, the lumber market's rollercoaster ride during and after the pandemic underscores supply and demand dynamics volatility. While the industry faces challenges, the current situation presents opportunities for savvy homeowners and builders. As the market stabilizes, the lessons learned from this period will likely shape future strategies in the lumber industry and beyond.