The COVID-19 pandemic sparked a home reno boom and, as we approached a year in lockdown in the spring of 2021, housebound North Americans began eyeing their backyard decks. What better way to social distance with family and friends while waiting for public health orders to be lifted?
Unfortunately, the price of lumber skyrocketed during the course of the pandemic. Lumber became the hot commodity — with price moves surpassed only by those of cryptocurrencies.
All hands on deck…materials
Home improvement stores were allowed to remain open and saw brisk business from contractors and homeowners alike. Until 2020, the price of 1,000 board feet of lumber had long been in the $200-$400 range. But then, COVID lockdowns sent do-it-yourself home renovation activity to record levels, including a surge in demand for new decks and fences.
There were supply shortages all over. Sawmills and other production facilities shut down when the pandemic hit, causing a sudden drop off in production. That was followed by an especially brutal forest fire season, which further exacerbated the situation.
There was barely any treated wood on the market, which sent cash prices — what sawmills charge distributors and wholesalers — to an all-time high of more than $1,500 (per 1,000 board feet) in May 2021. Related components also saw price increases and supply shortages — the cost of 6×6 posts that support decks tripled in a year.
Futures prices also hit a new high, topping $1,700 in May 2021. A commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future. Futures are used to hedge or protect an investment position or to bet on the directional move of the price of the commodity. Seldom does the trader take delivery of the commodity.
Neither those in the lumber industry nor tradespeople had ever seen anything like it before. Commodity traders were also experiencing price shock from the numbers on their screens.
“TIMBER!”: Prices come down hard and fast
Summer 2021 got underway and prices started to tank. A downturn in home renovation activity saw supply issues abate, which led to considerable price easing. And this continued as vaccinated people were finally able to make plans to do things outside of their homes. Suddenly everyone was decked out with places to go!
All of this resulted in lumber prices falling for eight straight weeks, ending the month of June down 45%, for the worst monthly drop since 1978.
A number of industry experts forecast that prices would fall in the second half of the year and continue into 2022, but the price adjustments got underway a bit sooner than anticipated. Traders believe wholesale and retail prices will continue to decline.
Source: Trading Economics – lumber futures prices (USD), July 2016–June 2021
What goes up must come down
By summer 2021 sawmills finally seemed to catch up with the pace of homebuilding and renovation-induced demand in North America that fueled the months-long price surge. New home construction activity in May was still up though — 50% versus May 2020, amid the spring 2020 shutdowns, and up 21% from May 2019.
People balking at still-elevated prices and lengthy delays for additional supplies helped trigger a big selloff. And, while the lumber cash price continues to fall, it has a long way to go with prices still up considerably since before COVID.
Even after recent price declines, that deck or home renovation project is still going to cost a lot more than it would have pre pandemic — and provide a valuable lesson in the workings of supply and demand.