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Trees fall, but prices won’t: The story behind the rising cost of lumber

by RACHEL SUN
Staff Writer | May 16, 2021 1:00 AM

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SANDPOINT — It’s been happening for months; lumber prices are steadily climbing, and homeowners, craftsmen and do-it-yourself-ers are grumbling about the seemingly unending price increase for a single sheet of plywood or some two-by-fours.

The reasons for the roughly double, and sometimes triple price point are complicated and multifaceted, said Todd Morgan, director of Forest Industry Research at the University of Montana’s Bureau of Business and Economic Research.

One is that throughout the pandemic, homeowners have taken to more household projects.

“Forecasters expected to see sharp declines in the repair and remodeling sectors and in new home construction as the country grappled with COVID,” wrote Tom Schultz, director of Resource & Government Affairs at Idaho Forest Group. “However, since June of 2020, we have seen new construction and repair and remodel activity surge beyond forecaster expectations.”

Another major reason for the price increase is due to new home startups.

From 2007 to around 2011, very few new homes were being built, Morgan said. Now, demand for housing has increased from a largely millennial group of prospective homeowners looking to start their families or move from temporary housing. Low interest rates are only serving to speed up that process.

According to a census report, March saw 1,739,000 housing starts, a 2.7% increase from the revised February rate of 1,720,000, and 30.2% increase above the March 2020 rate of 1,356,000.

“[That] is, I think, about the highest they've been since the end of the Great Recession, since before the housing bust in 2006. So there is a lot of pent-up demand for housing,” he said. “A lot of that home building was put on hold during 2007, really through almost 2011 for a pretty protracted period of time. So that created a big kind of pent-up demand for housing. And now it's really starting the dam break, so to speak, and there's this demand for housing.”

Part of that increase was heightened by the slowing of home and residential construction that happened during the pandemic, said Greg Latta, interim director of the Policy Analysis Group at the University of Idaho. Mill production reflected that slowdown.

“You had that little bit of a perfect storm in that you didn't have a lot of buffer,” he said. “You get to close your plants down for a little bit. And then demand was higher than you thought. And so prices reflect that.”

Because of that, demand has far outpaced what mills are able to produce. Wood production in the U.S. has been downsizing since the late ‘80s and early ‘90s, Morgan said.

But although that’s led to a higher cost for consumers, it’s had very little benefit to loggers or landowners.

To understand the full reason for why that is, one has to look Southeast — where states and lumber companies encouraged landowners to plant trees 10 to 15 years ago. Now, although demand has skyrocketed, an overabundance of wood in the South has meant mills are paying historically low prices.

Several companies, including Idaho Forest Group and multiple Canadian companies, have taken to buying up mills in the Southeast. IFG is building one in Lumberton, Mississippi, Shultz said. But consumers shouldn’t expect that to impact them immediately.

“I don't know that we'll see a bunch of capacity [with mills] added,” Latta said. “And if we did, it takes two years to get it running. So we're stuck with what we have,” he said.

In North Idaho, log prices have gone up slightly, Latta added. The increase is modest compared to lumber, but contrasts with Southeast states, where log prices have gone down in value.

The reason for Idaho’s differing market may be its limited supply of wood. Here, wood harvests are restricted in part because much of the logging in the state happens on public land. Trees also grow slower than in the warm, wet environments of the Southeast.

“Even with higher prices, if mills [In Idaho] were to offer more for the logs, they wouldn't necessarily be able to get more logs,” Morgan said.

On the mills’ end, many are located in rural areas, and have a limited labor supply. Mills can only produce so much lumber in a day, and aren’t always able to fill added positions.

“Kind of anecdotally, we've had a couple of mills tell us, ‘Well, we tried to run some longer shifts, you know, like a 10-hour shift and an eight-hour shifts and things like that,’” he said. “‘But we're worried about burning out our workers.’ Because if they can't get more people than that's the same people working longer hours, and then and then at some point, there's diminishing returns.”

For consumers, the question of just when lumber prices will drop depends on who you ask. To Latta, it seems the market should have already collapsed — but the market isn’t acting the way it normally would.

“There's a lot of indicators there that this could last for a year or two, or three, maybe not at this kind of stratospheric level of high prices, but a lot of things I've read it, even if they come down $500 to $600 per 1,000 [board feet], they're still going to be higher than they were before,” Morgan said. “That may become a new norm for some period of time. In terms of lumber prices, lumber prices were relatively flat, or for quite a long time.”

Shultz said IFG expects prices to normalize when demand does. When that happens, though, is still a mystery.

To Latta, it seems the prices should have already crashed during normal times — someone would decide it’s too much to pay, and prices would drop. But the economy, and by extension the lumber prices, aren’t behaving in a normal way.

“What's different is that the government is pumping a bunch of money into the system,” Latta said. “At some point, the government will stop pumping money into the system. You know, it's a tough world, if that's what we're counting on.