Soaring lumber prices and chronic shortages are prompting key U.S. housing industry participants to call on the Biden administration to find remedies that’ll boost wood production.
Thirty-seven organizations are calling for the “immediate attention” of U.S. Department of Commerce Secretary Gina Raimondo to address “skyrocketing” lumber prices and supply constraints they say endanger economic recovery and housing affordability.
“We respectfully request that your office examine the lumber supply chain, identify the causes for high prices and supply constraints, and seek immediate remedies that will increase production,” according to a March 12 letter signed by groups involved in areas of housing including construction, real estate and manufacturing.
The pleas come as higher prices for wood threaten to stifle the number of planned construction projects across North America and push prices for new homes even higher due to rising costs, exacerbating woes faced by new homebuyers in the past year. Soaring prices for wood have lifted the average price of a new single-family home in the U.S. by more than $24,000 since April, according to the National Association of Home Builders.
Lumber prices have nearly tripled while those for boards used in residential construction have jumped more than 250% since last spring, according to the letter.
“Home builders and construction firms that have signed fixed-price contracts are forced to absorb these crippling increases in materials prices and costly delays in deliveries,” the letter said, adding that “there is a significant risk that many of these firms will be forced out of business.”
Costs that can be passed on will make housing less affordable, the letter said, while “other projects will no longer be economically viable, which undercuts the availability of new housing supply and further jeopardizes affordability.”
North American lumber prices are expected to extend gains through this year as homebuilding and renovations cause demand for wood to outstrip production, according to forecasts by Forest Economic Advisors LLC.
“Production is going to have a hard time keeping up with demand growth as the world economy bounces back from Covid-19 in 2021-22,” Paul Jannke, the FEA’s principal of lumber, said Thursday during a conference hosted by the industry research group. That’ll keep the average lumber price this year above levels seen in 2020, he said.
The surge in lumber demand initially took the industry by surprise in mid-2020 as the pandemic fueled a flurry of home renovations while homebuilding soared. Lumber futures rallied to record highs above $1,000 per 1,000 board feet in February, driven in part by low supplies of wood products. The contract, which averaged around $456 last year, was at $972 on Thursday.
Renovation activity is expected to stay “extremely strong,” according to Brendan Lowney, principal of macroeconomics at FEA. “We’ll come off a boil, but we expect that market to still run hotter than it has in the last 10 years.”
North America’s lumber deficit will mean that more wood product needs to be imported from Central Europe, where a beetle infestation has killed trees and led to increased logging, according to Jannke. Unlike the U.S., European lumber production is expected to exceed consumption, allowing Europe to boost its exports, he said.
U.S. lumber imports will need to increase by roughly 14% to 15% this year, Jannke said. China has also increased its appetite for lumber, and FEA forecasts the Asian nation will need to boost imports by around 14%.
“There’s not going to be enough fiber to supply global demand for saw timber over the next decade,” Jannke said, adding that only the southern U.S. and Russia have significant amounts of excess timber. “We find it hard to see where this fiber’s going to come from.”