Off we go into the home building season, buoyed along by a mild winter (so far) and news that the rascal groundhog has predicted an early spring. This is the point in the year that I start to worry about lumber prices. If supply and demand economics held true in a pure sense, lumber dealers would start to increase purchases right about now, as their builder customers move into the early part of getting projects into the ground, and the increased pressure on lumber production would cause prices to tick up.
My worry is a reflex brought about by years of watching lumber prices go up and down. Our commodity lumber price tracker, the Composite House Report, indeed shows a modest increase in lumber pricing this month. Does that mean the academic model of pricing is in play? Not necessarily, but definitely maybe.
To give you an example, 2019 was a robust year in building across the United States, but you wouldn’t know it from lumber pricing. Below is a visual of commodity pricing from our 2019 Composite House Report, showing the monthly composite for the 1900 square foot single family home. As you can see, the movement throughout the year was remarkable, and not in line with a classic supply/demand model. One could try to explain the big dip from March to June by noting the extreme weather we experienced in the winter and spring. But, then, what happened from July to November, a period when construction was at capacity?
From a historical standpoint, this year in commodity lumber is starting out lukewarm. Believe me, lukewarm can be a good thing when it comes to pricing. The chart below shows the composite pricing for the same 1900-foot house on February 1 over the span between 2010 and 2020.
Bottom line, there is not much at the moment to get worked up about when it comes to lumber pricing. The only thing I know for certain is that we cannot control the commodity lumber market, so we will continue to watch it and report what we see.
It is important to keep in mind that the Composite House Report is only a barometer for commodity lumber, which is traded in a much different fashion than most building products.
When it comes to other items used in construction, we continue to receive notices of price increases from manufacturers for products from door skins to nails and everything in between. For example, the President recently announced another round of tariffs specifically on steel and aluminum nails, which will take effect February 8. Manufacturers are now well practiced at this routine. Nail manufacturers immediately announced price increases to go into effect simultaneous with the tariffs.
In building a home—or any construction project—it all adds up. Lumber may be the largest product cost in your project, but it is not the only cost. We will continue to keep you apprised of changes in manufacturer pricing as we go along. And the composite house report is updated on our website monthly. Please don’t be shy about asking questions. We are here to serve.
Thank you for being our customer!
Sincerely, Rick Lierz CEO