Current state of the lumber market

Cost of lumber has been on the rise which can make several people on edge when building a home. I am sure you have heard the horror stories of people purchasing a home and having a contractor cancel the contract because they can no longer build at the agreed upon price. It is true, lumber prices are at an all time high. We would be lying if we didn't say that we are frustrated with this as well.

So, how did we get here? Lumber prices initially began climbing after the Trump administration tariffed Canada up to 24% in 2017 for lumber. Then the Pandemic hit in March 2020 which caused production to slow or stop completely throughout the year. Even though the Pandemic slowed/stopped production, the demand for lumber actually did the opposite and increased exponentially, causing lumber numbers to increase rapidly. The Trump administration then slashed the tariffs down to 9% late last year in hopes to slow the price. Despite the tariff cut, lumber continues to rise at record numbers as demand continues to grow and the mills are trying to catch back up.

Is there hope?

With mills being able to fully open in recent months, causing increased production, there is hope on the horizon with future numbers predicted to fall this July. There are hopes of it to continue to fall throughout the next year. Should you wait to build? Not necessarily. In the Treasure Valley alone we are seeing unprecedented increases in market prices on homes. This is due to high demand and very low housing inventory. If we start to see builders slow down, it will only contribute more to a low supply/high demand environment in which market prices on homes will continue to climb. If you wait, there is a possibility you will be paying more regardless.

How we are handling it

Lumber pricing is volatile and changes on a daily basis. When bidding a home, we cannot get lumber pricing until there is a full set of engineered plans and we cannot lock down the price until it is ordered (lumber yards are not holding pricing). However, Keith Bucher (Owner of Landmark Construction Management) estimates the cost of lumber based on today's pricing, and lets his clients know of the lumber market and how it will change. We place a contingency line in the estimate number to help with the fluctuating lumber costs. A contingency is often required by the mortgage companies in a construction loan. This is a percentage of the total cost of the build job that can be used (or not) depending on if prices increase (in this case - lumber). This stops the worry that people cannot complete their home when being built due to the increase in lumber pricing, since they have a buffer in their loan. This is why custom building is the way to go in this market right now. A lot of the nightmares that you are hearing about in which contractors are canceling the contracts is because they are losing money when they agree to a price in advance and then have to build the home for that cost. With custom builds, you have the ability to use a contingency line and it helps to ultimately erase these issues. We are constantly watching the lumber market and order the lumber package as soon as the construction loan closes so our clients are aware of the pricing right away. It does not have to be a scary process. An open line of communication between our clients and ourselves is the best way to avoid any surprises.

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