Lumber Prices Going Up Again in 2021
Lumber Prices Are Going Up Again!
Lumber prices are not coming back down anytime soon. As a matter of fact, they're fixing to go higher and I can prove it to you in this article.
Do you know why lumber prices are up in the first place? I’m going to share with you what I’ve found out about that. I also don't think they're gonna come back down anytime soon. And before we are done I'll tell you how we can work around some of that price increase as woodworkers and DIYers.
So to get a general idea of what lumber will cost in the future, all you have to do is go to the stock market, somewhere like nasdaq.com, and look at the commodities future price on lumber. First you need to know what a future price is. A futures contract is an agreement or contract to buy a raw material at a future date at a specific price. And in this case, we're talking about lumber per thousand board feet.
In April of 2019, lumber futures were hovering around the $350 mark, give or take a few dollars. In April of 2020, they were actually just a little bit lower at about $330 per thousand board feet. In April of 2021 is where the perfect storm came together, which I'll talk about in a minute, that is actually driving this price increase. Lumber Futures in April 2021 were priced at $1,294 per thousand board feet. The futures price is what causes the in store price of lumber to go so high. And the bad news is the futures price from May 2021 to November 2021 is only about a 22% difference, which really isn't enough of a discount to signal any type of future decline in the price of lumber. And even worse news is the May 2022 futures price is only about 25% less than it is now, which again is not gonna drive a significant decrease in the price of lumber.
So why is this happening? Based on everything that I'm reading and watching, it's really a perfect storm coming together to drive these prices up. In 2019, when the futures were about $300 per thousand board feet, it hurt a lot of mills and a lot of them were struggling to maintain that price. To combat that several mills started shut down permanently or decreased their capacity. And because of everything going on in 2020 (all the precautions required to be taken), a lot of mills started decreasing their manpower based on restrictions, depending on the state they were in, as well as safety precautions they were having to take into account for their workers. That decrease in personnel also decreased supply. There were also some home building had declined early in 2020 and that hurt some mills that were to supply those. So the mills weren't able to actually produce any lumber, which they can't employ people if they're not producing things. Also in this mix is Canada. Canada actually supplies a lot of lumber to the United States, especially the east and central part of the United States. They supply a lot of the lumber that's used to build homes. Canada has very strict rules on how much they allow to be cut out their forests. That is all under their government’s control, and a few years ago, they actually reduced the amount that was allowed to be cut. This only compounds the supply chain problem. A lot of the major home builders and lumber suppliers were trying to wait on the lumber price to decrease before they started buying. Now they're at a point to where spring and summer's coming on, they have to build their homes, they have contracts they have to fulfill, so now they have no choice, but to buy that lumber at the current price.
We actually had a contractor come and take measurements and get info to give us an estimate on putting a roof over our deck back October of 202. He called a couple of months later, and said, "Hey, I'm not gonna come give you an estimate because lumber prices are so high and that's gonna drive the price of the estimate probably outside of what you're wanting to pay."
I also have a friend of mine who was building a home a couple months ago and had to go back to the bank and borrow an extra $10,000 just to cover the increase in the price of his lumber. In fact, the average cost to build a home has increased $24,000 because of the lumber increase since 2019.
Lumber demands in 2020 increased a lot also because a lot of people were at home due to being restricted from going to work that they started working on their own homes and building their own DIY projects. They started going to Home Depot and Lowe’s in mass and buying lumber there and that drove the demand even higher. How do I know that Home Depot and Lowe's were selling a a lot more stuff than in 2019? All you have to do is look at their 2020 reported revenue. Both Home Depot and Lowe's saw significant increases in revenue. In fiscal year 2020, Home Depot had $132.1 billion in revenue, which was an increase of over $29 billion. That was a 19.9% increase over 2019. Lowe's had a similar increase. In 2019, they saw $72.14 billion in revenue and In 2020, that jumped 24.19% to $89.59 billion. The big home builders, the big contractors are not buying their lumber from Home Depot and Lowe's stores. Those sales were from people like you and me. We were buying those project materials from Home Depot and Lowe's to do our own renovations and our own DIY woodworking projects.
We also cannot forget in 2020, there was a massive wildfire season. According to National Interagency Fire Center, by December of 2020, there were 10.3 million acres of land burned. That's compared to just 4.7 million in 2019.
All of the above mentioned things combined to create a perfect storm to restrict supply, increased demand and that is driving lumber prices sky high.
So what will stop these high prices? It's economics 101. Once the builders and the general public stop buying the lumber at this price, supply and demand will kick into full effect. The supply will be there, the demand won't and so the price will start dropping again. However, I would not expect it ever to go back to the 2019 prices ever again. A lot of people think that the prices leading up to the 2019, lumber was actually under priced for what you were actually getting. In other words what it took to get from the tree to the lumber store.
And now that a lot of these companies are seeing this massive increase in revenue, I don't think, that they're ever going to want to let that go. I mean, who doesn't like an increase in money? You would probably like a raise at work, and once you got that raise, you wouldn't want to give that back. You like to have that extra money in your paycheck, and so do they.
I do think that the prices will come back down eventually. But, I wouldn't expect it in the next eight to 12 months. I also do not think the futures on lumber will be back at that $300-$350 range. I think they will stay much higher than that going forward. What is a little disheartening is even if the lumber prices dropped 50% from where they are right now, they would still be higher than any time in the last 60 years. That puts it in perspective how much they have increased recently.
So as a woodworker, whether you're in a business to be a woodworker or if you're just doing this as a hobby, what can we do to help try to save some money while also still doing our woodworking projects? We love to do this. I love building furniture. I love building woodworking projects. So what are we supposed to do about these high prices and still stay in business or even still do this for a hobby? I suggest you look for a local supplier, like a local lumber mill or a local hardwood dealer. In mid-2021, a lot of your hardwood lumber that you can buy locally is much cheaper than what you could actually buy softwood lumber for at the lumberyard or big box store, which is crazy to me. Look for places locally that actually sell dried hardwood, ready to go for you. Some places dealers will sell lumber that is already surfaced four sides or you can get live edge slabs or you can mill it down yourself with planers and jointers. I have a video on where to buy your hardwoods and softwoods locally and online that may be helpful to you.
So hardwood will likely still be higher now than what softwoods were in 2019, however, it is still going to be cheaper than what you would pay for softwoods in 2021.
If you want to keep an eye on the futures price of lumber all you need to do is just search lumber futures on your search engine that you like, whether that be Google, Yahoo or whoever you use, or you can actually just go to nasdaq.com and search LBS. You can keep track of the current lumber futures price as well as see the last several year history of that price.
This price is unprecedented. We've never seen lumber priced this high in history. So what do you do to offset those high prices as woodworkers? Well, obviously, if you're paying higher prices for your lumber to build projects with, you have to pass that along to the customer. If you're doing this for a hobby, then your hobby will just cost you more. It doesn't matter if you're playing golf or fishing, if the prices get raised in your hobby, then your hobby costs more. There's really nothing you can do about the hobby side, but if you're building woodworking projects to sell, then you'll just have to increase the price of your projects to cover the costs. We as builders, makers, or creators, don't like to do that. However, to stay in business, it's back to supply and demand. If the customer wants you to build the project, they will have to pay the extra cost. I hate that it has to be that way, but it's no different than when you go to the store and you buying beef at the higher price in 2020, if you want that steak, you're going to have to pay extra for it.
I hope this information was helpful to you. Be sure to comment below and let me know what your thoughts are on the lumber prices and what you’re doing to help offset those costs!
Matt Outlaw
731woodworks