After the Summer of 2021, it seemed like lumber prices were finally settling down and becoming less volatile. Unfortunately, that was not the case, as the pricing of 1,000 board feet rose to above $1,400. Levels that have not been seen since last May.
The average home takes 16,380 board feet for framing alone, meaning an increase from $400 results in a $16,380 increase in lumber costs for a home. This does not even account for the lumber that is used as plywood for sheething, subfloors, and lumber used throughout the house in cabinetry and flooring.
What is behind this rise, when will volatility settle down, and what can be done to curb the rising cost of lumber?
The Rise in Lumber Prices Has Multiple Causes
Russia is a significant exporter of lumber products globally. They are accounting for 21% of global sawn wood exports in 2020. Because it is such a prominent exporter, sanctions imposed on Russia will impact the market for lumber worldwide even if Russian imports do not constitute a large proportion of our direct imports.
There is demand for new residential developments in all sectors, including single-family homes, multifamily developments, and build-to-rent communities. Other areas of commercial development are also booming, though they are not as heavy consumers of lumber.
At the end of 2021, there was a gap of 5.8 million homes that the market had a demand for. This creates a vast market and evident demand for builders to start more housing projects. The data shows that builders are working to meet this demand. Housing starts in 2021 were up 13.4% from 2020. Compared to demand, the gap in homes will not be met in the short term and will create upward pressure in lumber prices for years to come.
On November 24th of 2021, the US Government imposed an increased terriff on inports from Canada. The terriff increased from 8.99% to 17.99%. Since terriffs usually have an impact on the importer, this amounts to a 9% increase in lumber prices imposed by the US Government on lumber imported from Canada. These Canadian softwood imports account for 83% of total US softwood imports.
It has taken longer than expected for supply chains to return to normal after economic shutdowns relating to the pandemic. While measures imposed by governments are not impacting production as much as they did when shutdowns were widespread, the rebound in output has been slow.
When Will Volatility Settle Down?
There is no end in sight for the lumber price volatility in the short term. However, with the war in Russia going on, the spring building season coming up, and supply chains in Canada slowly restoring after years of Covid policy, it could take a while for pricing to reach equilibrium.
Methods to Reduce Costs Amidst High Lumber Pricing
Keeping the volatility and current high prices of lumber in mind, it is now an attractive option to consider ways to reduce lumber costs when building a new home, addition, or significant renovation. When prices were lower, there used to be less incentive to optimize for lumber usage as the lumber package was not as large of a percentage of the total build's cost as it is today.
The best time to think about what options you have to keep costs under control is when you are designing and planning your home. Here are three options for saving money on lumber to consider.
Steel Framing Offers Attractive Solution
Traditionally steel studs cost more than timber studs. However, that has been changing. Steel studs can save on both material cost and labor. The lower labor costs are partially because they weigh less for the same applications. In addition, they come pre-drilled for running wires. This also offers savings for the total cost of the construction project.
Using less traditional lumber materials can reduce the overall cost of a new build. SIPs, or Structural Insulated Panels, offer a great alternative to traditional studs, sheeting, and insulation. While the panels are still more expensive than lumber alone, they can reduce the overall build cost. SIPs save time in the labor in framing and insulating. They also shorten the building timeline. A project that gets completed faster has lower carrying costs.
Another technology where creative alternatives can save money in lumber costs is engineered joists. For example, floor trusses can save money compared to traditional joists or tji joists. This is because there is less total lumber in a floor truss than traditional joists.
More Efficient Floorplans
With the current skyrocketing prices of lumber, it is a good time to think about optimizing floorplans to minimize lumber costs. When lumber futures are three to four times as high as in 2019, there can be savings in optimizing floorplans for lumber savings.
You can optimize the floor plan to have less circulation space and be more efficient overall. By doing this, we have built houses that have similar amenities as other homes while having 20% less square footage. This results in savings on the lumber package.
Another option for saving on lumber is to do slab-on-grade instead of a full basement. Utilizing a townhome-style build can save money on joists and sheet materials for the subfloor on the first floor. Since sheet goods are currently experiencing the biggest spikes in pricing, this can result in overall savings compared to a traditional two-story home with a full basement.
Efficient shapes will save money on lumber. By building dimensions that the lumberyard already stocks floor trusses for, minimizing protrusions or other features, you can reduce the total lumber costs on the house.
Focus on Renovations
With lumber prices being sky high, renovations are comparatively more affordable than new construction. This is because renovations utilize existing framing and mostly focus on remodeling interior framing.
Pivoting into the mindset of renovating instead of development applies to rental properties just as it does for detached single-family homes. During the 2021 spike in lumber prices, buying units to renovate and rent out became more attractive than the build-to-rent model.