The last few months have led to many of us scratching out heads. From spring of 2020 to spring of 2021 the cost of lumber has increased to all-time highs. Why? Well, there’s several big reasons all coming together at the same time.
Interest rates have been amazingly low for several years. In an effort to further stimulate the economy during the pandemic, interest rates were lowered even further. This means that more people qualify for homes – and the more people who qualify for homes leads to more people buying homes and an overall housing shortage. Simply put, way more new homes are being built today than ever before – and building a new home requires a termendous amount of wood and materials. Currently, about 1 in 4 homes being sold are brand new – historically, new homes used to be only 1 out of every 10 sold on the market. Demand for new and existing housing of all kinds are at record highs.
Whether it’s the political climate or a shift in philosophy catalyzed by the pandemic, people are moving away from densely populated downtown areas. Demand for suburban and rural housing has never been higher. With existing homes for sale entering bidding wars and being gobbled up way above asking price, and then those homes are usually followed by a remodeling and renovating period by the new buyer. Further, all of those who can’t find an existing home for sale turn to the new home market, and construction and building materials are struggling to keep pace.
So, you have more people qualifying for homes who previously never could – combined with a massive population migration demanding new homes be built in surrounding metropolitan areas. These two factors, in of themselves, are exponentially pushing prices upwards. But, wait – there’s more.
Not sure if you’re aware, but we’re in a trade dispute with Canada. Canada is one of the leading producers of lumber, and, until our representatives can work out a trade deal – we’re stuck paying through the nose in tariffs.
Internally, our domestic production of lumber is sputtering and at the lowest levels seen in recent decades. For a time, this was due to sawmills being shutdown over concerns of COVID-19. Most all industries took a pause for a period as they tried to keep workers safe and figure out a way to move forward. However, lumber production has remained low due to new government regulation. With environmentally conscious policies at the forefront of political theater, the forestry industry has been placed in an impossible situation and is unable to meet our country’s current demand for materials.
So, again to recap – low interest rates allow more people to qualifying for housing, mass population migration away from densely populated areas, high tariffs on imported lumber, and lowest domestic lumber production numbers in recent decades… but yet, there’s still more.
The cost of everything seems to be… well, up. It’s controversial to use the “I” word and the Fed and many politicians reject the notion of inflation. However, a simple walk through your grocery store will show that bread, milk, eggs, vegetables, meat, and drinks are up 4 to 20% compared to a year ago. In the building world, this is consistent as well. Gypsum, used to make drywall, is up 7%. Steel is up 18%. Copper is up 27%. And land is up about 11%. Consumer electronics and appliances had been seeing steadily decreasing numbers, but those leveled late in 2020 and have begun to rise in 2021.
As you’ve read, a perfect storm of major influencers has caused the historic price increase of lumber and building materials. Supply chain disruptions, reduced production due to regulation, import tariffs, a redistribution of population, and more home buyers than ever have caused a demand for building materials never before seen. We’ll be honest, the casual renovator has likely been pushed out of the market due to all of this for now – the majority of focus being placed on homes recently going on or coming off the market. That’s not to say all home improvement projects are out of the question, and here at Alpine Contracting we can still get quite a bit done. Let’s have an earnest conversation about your desires, expectations, and budget. If you’re eager to finish your dream home, let’s get it done! One of our Project Managers would love to walk you through the process.