June 1, 2021

If you’re in the market for lumber, expect high prices and long lead times.

“The demand still seems to be very strong in our markets,” said Pat Costello, vice president of Schoeneman’s Building Materials Center.

“We’re very, very busy in multifamily and single family. So far we’ve been successful in getting the vast majority of the products we need, but certainly there have been pain points along the way.”

Pricing appears to have peaked in early May at nearly $1,700 per thousand board feet of two-by-fours. It’s down to about $1,300. A year ago, it was about $350. The spring of 2018 brought pricing as high as about $600, and spring of 2019 was in the $300s.

The pricing is the fastest rise since the post-World War II housing boom, according to Mark Vitner, managing director and senior economist at Wells Fargo, in an interview with the newsletter Supply Chain Dive.

“The demand for lumber is exceptionally high, and the supply is constrained,” Vitner said. “It’s a mess.”

The pandemic limited operation of some sawmills, which anticipated a drop in demand. Instead, the market both for new home construction and renovation went up as people stayed home, focused on improvements or decided to move.

Lumber mills in Canada also have been impacted in some cases by the mountain pine beetle, which Bloomberg reported destroyed enough lumber supply to build 9 million homes.

There might be some relief in sight, slowly. Since early May, the July futures price for random-length lumber on the Chicago Mercantile Exchange has dropped nearly 20 percent to $1,303 heading into the Memorial Day weekend.

“There was a little bit of a correction in the futures market, but the cash prices, the instant price if you buy it, those numbers have stabilized but are not coming down,” Costello said.

“But in mid-May, anything we order now isn’t going to come in until July. The opportunity for relief on mid- or late-summer projects is fleeing very fast, and there’s no indication of a precipitous drop.”

Lead times are “very challenging,” he added. “What used to take us a couple weeks to a month to get now takes 45 to 60 days, so planning is much more important.”

That’s more an issue of delivery method than supply, he said.

“The availability of trucking is taking it from 30 to 45 days to up to 60 days,” Costello said. “Rail cars are coming in better shape than that, so the rail backlog is slowly diminishing. But trucking is still a mess. I think it’s a labor issue.”

In some markets, the lumber crunch has caused multifamily construction projects to go dormant, he said. That hasn’t been the case in the Sioux Falls area.

“We quit giving recommendations a long time ago. We’re trying to educate builders on what’s happening in the marketplace and let them make decisions with their customers,” Costello said. “If it’s a multifamily builder, if their financial projections make sense at these numbers, that’s their decision if they want to proceed or if they want to wait it out to see if the lumber market gets better.”

On the residential side, “every unfinished basement and deck or fence that needed to be replaced got done last year,” he continued. “The do-it-yourselfer has really slowed down, but it’s been picked up in new single-family home construction in our market.”

The average lumber package for a starter home has gone up $36,000, he estimated.

“But it’s not just lumber. Shingles, siding, all the components, everything has gone up, but it seems to be most dramatic with lumber.”

For now, Schoeneman’s, which buys most of its product from Canada, is able to keep lumber in stock. And the demand is attracting new customers, Costello said.

“We’ve seen a lot of new faces,” he said. “It comes in and goes out pretty quick.”