How We’re Helping Clients Build Through a Turbulent Lumber Market

Updated: Oct 28, 2021

Skyrocketing lumber prices have been dominating the news cycle and it has fast become the primary obstacle facing the building industry nationwide. What normally accounts for 50 percent of a project’s costs has ballooned to approximately 75 percent. Projects of all shapes and sizes are shouldering the brunt of these exponential price increases, but residential construction is particularly hard hit as we enter spring and summer selling season. Framing lumber prices have increased by 180 percent since spring 2020 and have raised the average cost of a new home by $24,000, according to the most recent data from the National Association of Home Builders. Obviously this is not sustainable, and it’s causing many builders and developers to make some hard choices about the feasibility of current and future projects.

Why Are Lumber Prices So High?

So, how did we get here? The reality is that lumber prices had already been on the rise in late 2019/early 2020 before the pandemic. The Great Recession caused the closure of several mills, many of which did not reopen during the recovery. Supply was already a concern, and many in the building industry knew it was only a matter of time until an event or change agent would transition troubling market conditions into a crisis situation.

As COVID-19 required stay-at-home orders across the country, mills had to temporarily close or slow production, which also reduced supply. Re-openings have come with challenges and obstacles, most notably labor restrictions and transportation issues due to pandemic health and safety regulations. Couple this with sustained market demand and surge in new housing starts and remodeling projects, and the situation has become dire, with severely low inventories and unprecedented prices.

When Will Lumber Pricing Normalize?

As the country continues its vaccination rollout and as unemployment benefits end for many workers, mills anticipate adding more labor to their payrolls throughout the summer. There’s an approximate two- to four-month lead time in production from the outset, which puts a supply increase into the market sometime during the third quarter of this year. No one really knows for sure, but this is a realistic estimate of when our industry can expect some pricing relief.

How to Ease the Burden of Lumber Costs

Unfortunately, this leaves smaller- to mid-sized manufacturers and builders few options in the interim. Big box retailers and other high-volume purchasers are accessing a majority of lumber inventory that is available. Mills have transitioned to allotment ordering systems, however this also presents a challenge because order rationing is based on past purchasing volume. This type of ordering structure again favors volume buyers, and while the rest of us are able to secure pricing agreements with the mills, the inventory may no longer be available on the expected ship date.

Clearly, out-of-the-box strategies are necessary to weather the storm until mill production can begin meeting demand, hopefully sometime in early fall. At SBS, we’ve developed alliances with local truss companies and lumberyards to increase our purchasing power and share costs and savings. This has helped, but not as much as we would like, as most vendors only hold pricing for a few days and there’s no guarantee that product will be available to ship.

Making adjustments to board quality has also become a regular consideration. We’re seeing more interest in OSB and LSL, but naturally demand has also risen for both. Ship times have increased from several days up to three to five weeks. The lack of control and transparency across the industry and market is difficult and frustrating to navigate. We get it. We feel it too.

How Prefab Construction Can Help

Postponed or canceled projects are occurring, but it doesn’t necessarily have to be this way. Panelized framing is a cost-conscious and viable option for builders because the manufacturing process is more efficient with faster turnaround times.

Some lumber cost increases can be mitigated by cost savings in other areas when constructing with a panelized system. By working closely with architects and engineers early in the planning phase, our team simplifies structure design to minimize waste and increase efficiency. We use MiTek software systems to model structures for precision design and construction, and we’re able to evaluate, anticipate, and resolve mechanical, HVAC, and plumbing issues before panels move to the field for assembly. Problem-solving in these early stages in a closed manufacturing facility reduces the chance the same issues crop up on the job site, which saves time and labor costs that would be required to fix them.

Prefab panels also reduce cycle times by approximately 25 percent, representing a carrying cost reduction by about three months. These savings could be especially significant for multi-family projects. Panel construction also lowers labor costs by reducing the number of workers required for manufacturing and assembly. A traditional project that would require four or five journeyman carpenters would only employ one journeyman and three laborers in an offsite panel facility.

Explore Panelized Construction for Your Next Project

While no one can control lumber market conditions, pivoting to panelized framing can help builders recover some of these cost increases. We are working with architectural and engineering early on in their planning to create solutions that increase structure design efficiencies, reduce waste, and accelerate cycle times. We welcome the opportunity to consult with you on your upcoming projects.