3 reasons why lumber prices are high in 2022
Lumber is perhaps the one natural resource whose dramatic price increase summarizes inflation worries in the American economy. The price of lumber has soared by as little as 250% and by as much as 600% since the pandemic started.
Consequently, the prices for crates and pallets have skyrocketed beyond any peak market prices in recent history.
1. Increased demand has increased lumber prices
The shutdowns from the 2020 pandemic forced many Americans to be stuck at home looking for something to do. Pile on the extra $300 to $400 weekly unemployment subsidies, and not only do people have the time but now they have the money to take on home improvement projects, making a run not just at lumber but on general building supplies.
Additionally, the United States saw a construction boom for commercial and residential properties, particularly because employees could finally work from home. This allowed them to relocate to more affordable places throughout the country.
As such, the surging price of lumber since April 2020 has tacked on more than $36,000 to the average price of a new single-family home, and about $13,000 to the cost of a multifamily home, according to the National Association of Homebuilders.
Similarly, the housing boom decreased the availability of ready-made homes on the market, which generated higher demand for lumber and construction materials to build a house from scratch.
2. Decreased supply has caused lumber prices to rise
Furthermore, the pandemic caused a gigantic strain on the production of lumber when Americans were ordered to stay home by shutting down their places of employment.
One of the biggest casualties of these measures was the sawmills that had kept the production of domestic lumber in high supply. Not to mention, some of these mills are specifically equipped to produce ISPM certified heat-treated wood, which is crucial for crates and pallets used for international shipping.
Another hit to the pallet and crate industry is that lower grade lumber is trading at a much closer delta to higher grade lumber. This makes cost hikes higher here than in the overall lumber market highlighted in news reports.
Even more, a sizable portion of the wood for lumber comes from trees logged here in the Pacific Northwest and in British Columbia.
Although this area offers breathtaking beauty from mountains of trees, it also means threats of wildfires and beetle infestations can create bottlenecks in the supply.
3. Shortages in the distribution chain affect lumber prices
Likewise, lumber is not simply produced by cutting down a tree. It must go through a whole logistical process that involves many parts along a complex distribution chain.
The pandemic created a shortage of truckers who transport wood along the process of becoming useable lumber. There are also shortages of important materials such as computer chips and metal, which are indispensable for the vehicles and machinery that create the lumber we need.
Finally, there are tariffs on imports for the materials needed to make this delicate chain run smoothly. Though this constraint was created by the previous administration, the current one is yet to address it to ease the pressure and help distribution flow once again.
The bottom line
No doubt, the high price of lumber has created a plethora of issues for the economy. Nevertheless, we are optimistic that the issues are being resolved.
While the demand for wood products seems like it will continue as insatiable hunger, more sawmills have reopened at full capacity to provide more supply of lumber, and more truck drivers are returning to work with higher pay as an incentive to do so.