But it’s not just lumber that’s getting prohibitively costly. According to the latest data from the Producer Price Index report released by the Bureau of Labor Statistics, the price of goods used in residential construction rose by 1.5% in December. Building materials prices increased 16% last year, the data shows, and have risen 18.8% since December 2020.
With the pandemic as a looming backdrop, attendant market changes made for the perfect storm, Leonard said. “We just saw a COVID slowdown in construction and a boom in the housing market. The housing market was getting better, and then it just took off. After last year, when it declined to the $400 mark, a lot of the distribution side of it did not want to re-enter the marketplace.
“So even while demand stayed strong, we weren’t filling inventories. By December, the market just took off because people needed wood for job sites, and it wasn’t available in the distribution chain. So, the distribution goes to the mill and the mill doesn’t have the transportation capacity to get the wood over here. It’s kind of like the perfect storm.”
Mark Fleming, an analyst at First American Financial Corp. in Washington, D.C., echoed similar sentiments but puts the lion’s share of the blame on a beetle. That’s not a typo: A beetle, as in a bug, is largely to blame for escalating lumber costs that have indirectly affected home prices, by Fleming’s reckoning.
“There are the obvious culprits – higher tariffs and increased demand for Canadian lumber for home building,” Fleming told Mortgage Professional America. “But that’s not the real problem. The supply of Canadian lumber from British Columbia is highly constrained because a devastating beetle infestation killed a large amount of trees about a decade ago, and the dead trees made wildfires more devastating. All of which has resulted in a real shortage of available supply to harvest.”