Auburn University forestry professors discuss rising cost of lumber

Auburn University forestry professors discuss rising cost of lumber
For a variety of reasons, including the COVID-19 pandemic, lumber prices have been unusually high since early 2020. (file)

Anyone who has looked into building or renovating a home lately may have noticed that lumber prices are unusually high.

In an interview, Auburn University forestry professors Adam Maggard and Daowei Zhang provided insight into the rising cost of lumber and discussed what can be expected in the future.

Maggard is an assistant professor of forest systems management in the School of Forestry and Wildlife Sciences and an Alabama Extension specialist. Zhang is the school’s associate dean of research and serves as an Alumni Professor and the George W. Peake Professor of Forest Economics.

Adam Maggard is an assistant professor of forest systems management in Auburn University’s School of Forestry and Wildlife Sciences and an Alabama Extension specialist. (contributed)

Q: Why has the price of lumber risen so much since early 2020?

A: The following short-term factors caused the increase in lumber prices, all merging simultaneously:

  • Strong reduction in lumber production and capacity as a result of COVID-19 and the resulting safety guidelines.
  • The real-time demand growth from home renovations.
  • Persistent housing markets fueled by low mortgage rates.
  • The U.S. has been limiting Canadian softwood lumber imports even when lumber prices have broken records several times in the past few months.

These short-term factors were also met with one long-run factor: Sawmills had not expanded or even reduced their production capacity when lumber prices were down after the 2008 housing market collapse and recession.

All of these factors paved the way for a shortage of lumber and a price increase.

Q: What are your expectations for the price in the coming months?

A: While lumber prices could be jumpy and may remain high for the remainder of 2021, we have seen some homeowners deciding to postpone their renovation or new home activities as lumber prices are currently too high.

Q: What is the effect on the lumber industry? The timber owner?

A: The issue appears to be more a result of restraint on supply rather than expanding market demand. Nonetheless, a combination of both supply restraint and increasing demand has caused a supply chain gap that resulted in a price jump in the lumber market. It is good for the lumber industry. High lumber prices have led some lumber producers to hire more laborers and increase their shifts and production. Others have started to expand and build new mills.

Daowei Zhang is the associate dean of research in Auburn University’s School of Forestry and Wildlife Sciences and serves as an Alumni Professor and the George W. Peake Professor of Forest Economics. (contributed)

As for timber prices received by the timber owner, not much change is likely in the short term because it may take a while before an increasing sawmill capacity can absorb the oversupply of timber that has been accumulating for more than a decade. Until then, the industry may continue to see the unusual decoupling of lumber and timber prices experienced since the spring of 2020, which had not been seen before.

Q: How will higher lumber prices affect home sales?

A: All else being equal, high lumber prices would lead to higher construction costs and lower housing starts, but also higher values for new and existing homes. High home values eventually cause sales to decline unless personal income rises even faster and/or mortgage rates decrease further.

Q: What would bring lumber prices down?

A: Lumber prices will come down when mills catch up with capacity and are operating at full capacity. It is not an issue of a shortage of timber but how much lumber is being produced. A decreased demand for lumber coupled with an increase in mill production would eventually bring prices back down. There was an unprecedented positive feedback loop between spot lumber prices and lumber futures in the last few months. Some people bet that lumber futures would go down. They were wrong, and as a result, they had to cover their positions by taking a rare and extraordinary measure – buying lumber from retail stores, further escalating spot lumber prices.

Although no one can predict where the lumber prices will peak, this high level of lumber prices is not generally sustainable in the long run. We by no means say that lumber prices would be down to the pre-2020 level any time soon.

This story originally appeared on Auburn University’s website.

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