nThe construction business has always always been tricky to navigate.  Especially when many of the jobs takes several months to get from proposed, to ink, to groud breaking.  With everything else going on last year, having to go back to a client to deliver the news that materials have tripled since the deal was done is not a pleasant conversation. 

The pandemic, a lack of supply and demand that elevated at a record pace served as the perfect recipe for materials like lumber to go from just over $500/thousand board feet to $1,515/thousand board feet in just 4 months.  How did this come to be?  Well here are 5 reasons we came up with.

Home Improvements

Scared and stuck at home, people all of the sudden found a lot of time on their hands, money they weren’t spending, and access to the single biggest catalog of DIY how to videos – good old YouTube! Home repairs and renovations were at an all-time high and folks were standing in line outside big box hardware stores across the country trying to get there hands on the materials needed for their various projects.

Cheap Money

By the Fall of 2020, home builders were in full swing building houses in record numbers.  Fueled by mortgage rates hitting record lows, new single family houses were at the highest level they’d been since 2006.  People working remotely now found themselves needing more space. With money being cheap many upgraded to larger homes or moved from apartments.

Mills couldn’t keep up with demand

We normally get most if not all our timber from our Canadian friends up north. But a combination of mountain beetles destroying 15 years of log supplies along with a border shutdown meant we would need alternative sources.  Building new mills takes a few years before they can start operations. With only a handful of fully operational mills in the US and importing from countries like Indonesia and Mexico, it seemed to take forever to get product. It was reported that some materials sat on docks for months due to a depleted US Customs force.

Labor is scarce

Operating mills knew they had to up their output. Some had crews working around the clock.  However, they still battled labor force problems. Blue collar jobs have been difficult to fill to begin with.  Now mills would have to shutdown for 2 weeks at a time if a COVID outbreak were to happen at the plant. Further, people receiving stimulus checks and steady unemployment checks weren’t exactly running out the door to go work in a factory.

Logistics

If that wasn’t enough, mills can’t fabricate without truck drivers moving logs from forests to mills and then getting finished products to distribution centers and lumber yards. Truck drivers were in short supply which also contributed to long waits.

While the speed at which the price increases happened was unprecedented, the situation is understandable.   Just like anything else, high demand and not enough supply increases value.  As supply increases, demand goes down along with the price.  Contrary to initial thoughts that prices wouldn’t level out until 2023, some materials have dropped in price over the last several months.  Let’s hope as we get further away from this pandemic, we will see a return to normalcy in the construction supply chains!