Where are Lumber Prices Going in 2022? By DIY with Dave 

 

Lumber prices have gone crazy in the past 2 years. Pre-pandemic of lumber was around $400 per thousand board feet. Early in the pandemic, the prices went as low as $260 per thousand board then all the way up to $1600 earlier this year. 

 

Since then, the price stabilized a bit but has recently started to creep up again. So what’s coming in 2022? Will prices drop or they will skyrocket again? Well in this video Dave will examine that question and explain lumber prices and projections for 2022. 

 

Wood is a major component of many products produced throughout the world and in the U.S specifically. Things from homes to toys to furniture, even concrete forms used in construction, shipping pallets and so much more. 

 

So when the price of lumber goes up it can cause the prices of a lot of things to go up. In fact, in 2021, there was a shortage of shipping pallets in the world. That caused the price of shipping pallets to double which then, in turn, impacted the cost of shipping and drove inflation even higher. 

Determining Impacts of Lumber Supply 

 

In order to determine where the prices are headed, we need to analyze what impacts lumber supply and lumber demand.

 

Supply

 

So first let’s talk about supply. The good news here is that in the U.S there are plenty of trees. Take just the southern US alone, there is an estimated 12 billion tons of standing timber. 

 

They harvest an estimated 280 million tons every year. This means that there is over a 30 year supply of standing timber just in the south alone.

 

Given that timber is a renewable resource that is constantly being replenished, that supply could last indefinitely. So there’s no shortage of standing timber.  What about the harvesting and processing of lumber, that’s where we’ve seen bottlenecks in the past few years. It takes a lot of work to harvest and mill lumber, and new lumber mills sometimes take millions of dollars and years to build. 

 

The good news is that lumber companies are using at least part of their massive windfall from 2021. They’re investing in building new sawmills or making their existing sawmill more efficient. 

 

However, they could definitely be doing more.  What they are doing will help ensure that there is enough supply to go around. That being said, sawmills may still limit production if they feel that prices drop too low. It is not cost-effective to run some of those mills, but generally, at the price that we are seeing now, the sawmills will produce as much as possible to take advantage of high prices. 

 

Wood Transportation 

 

The bad news on the supply side remains focused on transportation. Most lumber is harvested and processed in rural areas far away from cities and suburbs. A portion of the cost of the lumber is the cost to transport it from one place to another. Lumber is heavy and most often transported via rail but sometimes transported by truck.

 

Like every product right now, logistics are challenging. There are shortages of truck drivers, rail cars, and workers and it has not been uncommon over the past year to see lumber stacked high at rail yards and warehouses just waiting until it can be moved. 

 

 

 

 

In fact, I’ve seen some timber spoil when it has been exposed to the elements for too long on the supply side. There is plenty of standing timber, there are plenty of sawmills that are working constantly- but unless the transportation factor can get figured out, lumber prices in 2022 could be pushed higher.

 

There are other factors impacting supply as well but it is a bit harder to predict things like forest fires or adverse weather events such as hurricanes or climate change that could also impact supply. For those events, we will just have to wait and see how it unfolds to determine how prices could ultimately be impacted.

 

Demand 

 

So what about the demand side? Well, the number one driver of lumber demand in the U.S is the housing market and so to predict the price of lumber in the coming year we really need to understand what is coming for the housing market.

 

In this video below Dave refers to a graph of housing starts in the US for the past 5 years from federal reserve data. A housing start is when excavation begins for the footings or foundation of a new home, in this graph you can see that just before the pandemic the housing market was beginning to tick up. It bottomed out in April 2020 but has been on the increase since then, the graph is a bit deceiving though because it shows that housing starts are leveling off. 

 

In the past housing starts would decline as the economy declined and that is because demand for housing would go down and therefore home prices would go down and then the construction of new homes would slow as an effect, but that’s not what’s happening here. According to the national association of realtors demand is high, fewer new and existing homes are being listed, new homes that are listed are selling faster and the prices are higher. In fact the median price in the U.S has increased by 25% since before the pandemic

 

Lumber Research

 

Other research from the national association of realtors shows that there is a shortage of housing in the U.S by over 5 million homes which was itself caused in part by demographics but also the lack of new home building that resulted as part of the 2008 housing crisis. 

 

So if demand for housing is so high and there is such a lack of supply, that has to do with shortages not just shortages of lumber but also other constructions components like sheetrock, copper, tile, cabinets, and more important than almost anything else labor. 

 

So new housing construction is currently constrained by those shortages which means that the demand for lumber and other products is actually lower than it would otherwise be and that impacts prices, generally making them lower- that is until those constraints are resolved and supplies and labor are available again. That’s when the pent-up demand of those 5 million new homes that need to be built will push lumber through the roof.

 

Lumber Price in 2022

 

There are other factors that could impact the price of lumber such as the recent increase of lumber tariffs.

 

So where is the price of lumber going in 2022, the answer is up. By exactly how much will be impacted whether suppliers can figure out shipping and logistics to get their supply where it’s needed and whether housing construction takes off. 

 

Interested by this article? Visit Dave’s social media to learn more.

 

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