Every decade or so, Ocean City, Maryland restores its famous 30-block boardwalk with fresh planks of treated wood. But this year, the beach community is putting its plans on hold due to a spike in lumber prices that would have doubled the price of the project to nearly a million dollars.
"I always call the wood suppliers before I go out to bid," City Engineer Terry McGean told Cheddar. "When both of them got back to me, the one essentially said one of the mills he deals with literally laughed at him when he told him how much lumber we would need."
Homebuilders and buyers are making similar calculations. The shortage has added $16,148 to the price of an average new single-family home since April 17, according to estimates from the National Association of Home Builders (NAHB).
Lumber has skyrocketed from below $300 per 1000 board feet in April to an all-time high of $934 in August. This is driving up prices in an already heated housing market.
"Framing lumber makes up about a fifth of the material costs when you put up a typical home," said Matthew Speakman, an economist at Zillow. "So a 150 percent year-over-year increase in prices will impact the material costs certainly for builders putting up homes."
Housing prices were up 8.3 percent year-over-year in June and 7.2 percent in July, with higher than usual costs for new construction, according to Speakman.
As a few gruff lumber yard operators told Cheddar, the cause of the spike is simple: COVID-19.
But lumber has a complicated supply chain, and the recent price surge stems from both unexpected factors on the demand side and miscalculations on the supply side.
To start, many lumber mills ceased production entirely due to stay-at-home orders and plummeting demand at the beginning of the pandemic.
This was right at the start of the typical building season for much of the U.S, when contractors tend to begin new construction projects due to favorable weather conditions for standing up a wood-frame structure that, for a time, will be partially exposed to the elements.
"That got things off to a pretty rocky start as far as meeting the supply that was demanded," said David Logan, director of tax and trade policy analysis at NAHB. "The shortfall has kind of snowballed in the months since without any meaningful catching up in production by the lumber mills."
Once the economy started to bounce back as early as April, mills resumed but at a much lower rate of production.
"They forecasted a sharp decline in demand for their product, and they turned out to be dreadfully wrong," Logan said of the lumber mills, adding that some cut capacity by 20 to 40 percent in the spring based on their predictions for the coming months.
This is where a huge surge in unexpected demand became a problem.
As exuberant earnings reports from both Lowe's and Home Depot can attest, consumers started investing in their homes as early as May. Weekly consumer spending in the home supply category jumped more than 80 percent year-over-year, according to a study from Facteus.
A spokesperson for Home Depot said the company's "merchandising and supply chain teams are working hard to replenish in-demand items, like some building materials, as quickly as possible."
DIY became a byword in the industry, with many customers seeking to improve their homes during quarantines.
"Close to no one in the early days of the shutdown had strategically forecast the large increase in DIY demand due to people being at home and having more time to do projects that they've had on their mind for months or years," Logan said. "That continues to play a role in the market being short in supply because the big-box home improvement stores were buying a lot more lumber."
Lumber also entered the pandemic with already heightened prices. In 2017, the Trump administration imposed 20 percent tariffs on lumber imported from Canada — a major supplier for the U.S. in addition to the southeast and northwest — raising prices considerably.
"Tariffs have been playing a deleterious role since 2017," Logan said. "That 20 percent has been a constant factor in keeping prices artificially high for the last three years or so."
On the housing front, Speakman explained that contractors will often try to defray costs in other ways before changing the price tag. They may also be working with contracts that were written before the surge in prices.
"There might be instances where these framing lumber increases are manifesting themselves in recent home price increases, while there are other projects where builders are still having to adhere to contracts signed in the past," he said. "We'll likely see this dynamic play out in the months to come, not just right now."
In Ocean City, the boardwalk will have to wait at least a year before it gets new planks. Luckily, due to coronavirus, the city didn't run its boardwalk tram this year, which usually causes the lion's share of wear and tear. McGean said he's now shooting to rebuild in the next off-season.