Anyone going into a hardware store has noticed the price increases for lumber; projects requiring wood of any kind have become markedly more expensive to complete. Higher-quality hardwoods went from four dollars a square foot to almost six in some places, with some businesses reporting a 35% increase across the board, and that's on the smaller scale side of the yearly renovation boom.  For contractors requiring starting kits for new builds, prices have soared to historic numbers, lead times are increasing, and months are being tacked onto projects to accommodate for the slow turnover. Time is money, and the additional costs are being passed onto potential buyers, pricing many out of a market they once could afford. But what is causing all of the chaos?

A Perfect Storm of Bad Timing

Experts are laying blame on a perfect storm of bad timing: backlogs and labor shortages made worse by a pandemic which are now being further emphasized during a housing and renovation boom. When mills were staring down the prospect of a recession unseen since 2006, brought on by a historic pandemic, many cut their production capacity, and it wrenched supply down by almost 30% in worst case scenarios. Lockdowns sent workers across the nation home, but that soon had an unintended effect: bored, quarantining Americans rushed to hardware stores with dreams of grand DIY projects.  The lumber supply dropped dramatically.

Mills, which struggled to meet demand before the pandemic flipped the world upside down, were now pushed to their limits to meet the boom. To make things worse, recession-fueled, record-low interest rates spurred a huge housing rush, with buyers desperate to get their hands on anything they could afford. Renovations need wood. The supply dropped again. Those who were pushed out of that market were forced to look at new builds, and those starter kits need a lot of softwood to finish.

Do you see the problem here? When contractors began buying out what was left, the vicious cycle closed, and the problems started anew. 

The Market Panics

Lumber yards already strained by the DIY rush had a choice: pay sky-high prices for a scarce resource or face not being able to uphold their end of contracts already in the works. Desperate times call for desperate measures, and the market quickly fluctuated to respond to the panic buying. In April, the price per thousand board feet of lumber shot to an all-time high of $1,188; in May, the futures contract price (think of this as a pre-order on wood) for two-by-fours jumped from $48  per thousand board feet to $1, 420 (ouch). July is forecast to be even worse with a projected futures contract price of $1, 481 already showing on some exchanges. 

Unfortunately, this isn't something that will calm down anytime soon; experts are predicting this to be month ten of an 18-24 month cycle. This means that prices will continue to be high until the demand cools once the renovation season passes. It is true that lumber production recently hit a 13 year high, but that will only do so much. Mills still have limited capacity, and with labor shortages even worse than before COVID, supply can't meet the robust demand. 

In short, prices won't be going down until the home building and renovation seasons are over. It isn't news anyone wants to hear. Fortunately, there are signs of a light at the end of the tunnel. Single-family home purchases dropped 18% in February as the drastic price increases continued to push people out of homeownership range, and new home purchases fell 10% nationwide in that same time frame, suggesting the surge of new demand is beginning to end.  However, if you've looked at all the new neighborhoods popping up around the area thanks to Arizona's extremely strong housing market, it means we won't be seeing price relief in the next few months, likely until at least November.

Take advantage of an incredible seller's market! 

If there was any better time to become a licensed contractor in Arizona, we haven't seen it! Don't put off jumping on top of this seller's market and making a name for your business. There is no time like the present (quite literally, in this case) to contact us. The Arizona Contractor License Center provides test preparation, aid in set-up and registration within the state of Arizona, provides bonding to fulfill the state requirements, and we'll even prepare and file your application for you. We've been helping people become their own boss since 1972, so you can safely assume we know our stuff.