Lumber is cheap, but building or renovating a home isn’t

Remember how early in the pandemic, nearly everything home-related shot up in price? Now, with folks out and about again and interest rates high and supply chains smoothed out, those lumber prices have fallen back to Earth.

People stuck at home started spending money on their homes, which drove up the price of construction materials, especially lumber. Plus, people moved to new places where they could work from home, so new home construction shot up, adding even more demand.

However, all the other stuff that goes into homebuilding and renovation has not followed lumber’s price trend. This summer, it’s all about SPF — not sunscreen, two-by-fours. It stands for spruce, pine and fir, and it’s the benchmark for lumber pricing in the United States.

Back in 2021, with demand soaring and supply chains a mess, the price peaked at $1,600 per 1,000 board feet, said Paul Jannke at Forest Economic Advisors. 

“Prices currently stand at about $355, so lumber prices are extremely weak right now,” Jannke said. “Those record-high prices that we saw in the second half of 2020 through the first half of 2022 led to extensive investment, mills investing in existing capacity, new capacity.”

What happened? A combination of weaker new-home construction and renovation plus more lumber supply. 

Despite lumber being relatively cheap, building material costs are up 30% compared to 2019, which means homes remain expensive, according to Robert Dietz, chief economist at the National Association of Home Builders.

A lot goes into building or remodeling a home, said Carlos Martín at the Harvard Joint Center for Housing Studies.

“There are a wide range of other materials whose prices have gone up,” Martin said. “A lot of plastics, plastic-related products. There’s been some variability with steel.”

Additionally, electrical equipment like transformers, along with air conditioning and heating components, are in high demand because of government tax credits and rebates for green energy improvements.

All these higher costs are helping to drive a shrinkage trend, said Dietz of the NAHB. “New-home size has actually been falling in recent quarters as builders adapt to an environment where housing affordability conditions are really quite challenged.”

Dietz said that in 2023, construction of townhouses rose 6% and now constitutes a multidecade high share of new homes, nearly 1 in 5.

And the smaller the home, the fewer construction materials it needs.