The Real Estate and Lumber Industry in 2021
Due to the unprecedented COVID-19 pandemic, the focus on home improvement and housing has shifted. Even as the effects of the pandemic on the economy see a shift for the better, millennials and Gen-Z are reaching the part of their lives where housing and real estate are their top priority at the same time. The low mortgage rates paired with the current stay-at-home era has created the perfect situation for a skyrocketing real estate industry caused by a major increase in demand for housing.
Not only has the pandemic inspired many to buy new homes, but there is a great desire to renovate their current homes as stay-at-home projects amidst the lockdown and social distancing situation. Raw materials for both new homes and renovations have been depleted as a result of individuals spending money on their homes rather than the usual vacations, shopping, restaurants, etc.
Because of this booming real estate and housing market, lumber prices have responded to the increased demand and limited supply in the same way. We’ve seen the skyrocketing of lumber prices since the beginning of the year reaching a high of roughly $1,600. The overwhelming increase in housing purchases has depleted resources and due to this lumber shortage, we have seen the price of a common single-family house jump drastically higher. The main resources for the most widely used lumber are found in Canada and are experiencing lower production rates which have contributed greatly to this shortage. The beginning of the pandemic brought on a shortage of workers and drivers to transport lumber from mills to dealers and created a subsequent domino effect of a lower supply of raw materials. With the housing market in full swing this year, the lack of lumber has had a noticeable effect on prices.
Lumber has been a notoriously fluctuating industry over the past few years and the pandemic only bolstered it even more. This year has set multiple record pricing for raw materials, and past data cannot be definitive in finding a clear trend based on seasonality. Rather, these shifts are unprecedented with no anticipation due to the ever-changing circumstances.
It’s clear though, that prices cannot increase forever, and eventually, the affordability of real estate will drive demand down if past economic practices are any indication. However, currently, sawmills are unable to keep up with the overwhelming demand after previous years of oversupplying that has led them to ease up on production. As a result, meeting this new demand has proved to be difficult amidst the COVID-19 pandemic.
While real estate is currently hot and nearly everyone wants to get in on purchasing and selling land for housing, the raw materials needed are being strained. As prices of lumber continue to increase we are met with the possibility of housing becoming so expensive that its demand will soon fall.