Building Materials: Supply and Demand

The unprecedented spikes we experienced in building materials markets in spring 2021 came largely from the lockdowns caused by the pandemic. It is easy to deduct that reduced production and crimped supply chains then created material and labor shortages. There was also uncertainty on the part of manufacturers and mills that t e ort term effect woul cur con truction growt

However, with interest rates still low, projects in all sectors already let out to start and a massive rise in do it yourself spending, demand then surged to historic proportions. With most lumber commodities, increases were measured in triplicate, which peaked by August 2021.

By this point, developers who were targeting certain buyer price ranges decided to hold back. With many homeowners returning to work, the DIY market started to dry up as well. Lumber production, which had been working e eri ly to get ack on line, finally reac e levels that created a plateau and eventually a price slide back the other way. By early fall 2021, commodities prices fell to within a few points of pre-pandemic levels.

Why have lumber prices surged so aggressively in 2022?

Supply issues—While the lumber market had been stable for most of the fall and early winter 2021, production also subsided to meet a slower pace. However, demand jumped immediately, as many major home builders/developers decided to wait until year end to purchase and stockpile inventory while prices were low. The problem now is that lumber manufacturers fell behind the supply curve seemingly overnight.

nflation The worldwide hangover of weak supply chains and logistics caused by the pandemic have contri ute to inflation in t e S No in u try a ear to have escaped it. reight crisis T e e effect are eing elt y reig t auler , i ing ort an railway all o er Nort America and other parts of the world. Freight prices have soared.

Typical hindrances—Sea onal i ue an wil fire are always in some way disruptive to supply chains coming rom Cana a an Nort we t S

elocation e odus Most of the people leaving o ulate tate uc a Cali ornia an New ork are omeowner w o are elling t eir ome at large rofit and looking to buy new homes in their new states (such a Ne a a, a o an Te a T i create a ike in demand for housing over such a short period of time.

The combination of these basic factors, all of which I have learned to be valid from my experiences and research within the lumber industry, seems to indicate that lumber prices could continue to climb in 2022. In this era of volatility and uncertainty, builders must have a pliable relationship with clients and a contract that allows for market-based escalations. The days of fi e rice are no longer con uci e to o iti e contract performance.

Thanks to Dave Rodden, of Caseywood for writing this article. You can contact Dave at rhodend@caseywood.com, www.caseywood.com.

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