Lumber is down, Electronics are up, Drywall is up…!
The construction industry has had the craziest year in most anyone’s memory. When the economy shut down last year construction contractors had to deal with the uncertainty of just being able to keep their businesses open. As more and more states quickly established construction as an essential business, there was at least hope of finishing projects already started or in the books.
Mask mandates, social distancing, new ways of working over zoom brought additional challenges that were eventually managed, then, even as commercial construction slowed, the truly unexpected happened: A boom in the housing market!
As do-it-yourselfers suddenly competed with contractors for supplies like lumber, prices pushed up and up. Lumber spiked and eventually other supplies like drywall and tiles were in short supply as manufacturers worked through inventory while their facilities were idled.
As the pandemic progressed, there was a major freeze in Texas, a fire and earthquake in Japan that damaged a major semi-conductor plant, a nearly weeklong blockage of the Suez Canal and a ransomware attack on a major oil pipeline operator!
The supply chain around the world was broken. Shipping containers were in short supply, truckers who had been laid off or quit at the beginning of the pandemic were slow to come back to work and companies were slow to ramp up production fearing the economy would shut down again.
The volatility in building supply availably and cost left many contractors in a bind.
The Bureau of Labor Statistics reported on May 13 that the producer price index for inputs to construction, a measure of the cost of all materials and services purchased by contractors, jumped 19% from April 2020 to April 2021. Meanwhile, the index for new nonresidential construction, essentially an estimate of the change in bid prices, increased only 2.3%. Prices for lumber and some steel products have tripled,…*
Jump forward to today. As of August 20th, the price of lumber has fallen to $399 per thousand board feet down from an all time high of $1515 on May 28th! That puts lumber at a low that hasn’t been seen since 2018.
Of course this decrease in price may not be reflected in the retail market yet till it works through inventory purchased at higher prices. It does mean that contractors have the option to wait or ask for a lower price or to go to suppliers a bit out of the way who may be willing to sell product closer to current wholesale prices.
Unfortunately builders have yet to see price or supply relief come to other types of materials and supplies. Tariffs initiated under the Trump administration are still inflating the price of imported steel as much as 25% along with tariffs of 10% on aluminum and 9% on Canadian lumber.
The chip shortage also still affects costs for home appliances including increasing demand for integrated home functionality using IoT (Internet of Things). Chips are now used in construction machinery and even power tools so until the chip shortage is addressed pricing may remain volatile for almost anything electric.
Over time prices will settle back down, though unlike lumber, much of it will probably remain above pre-pandemic levels for some time to come. Chip plants for instance can take almost two years to bring online. Imported marble or metals may remain expensive until a range of issues affecting them is resolved. In the meanwhile contractors may consider adding price-adjustment clauses in contracts in order to protect themselves from continued price volatility.