In March of 2020, when the pandemic first hit, lumber mills began to slow production due to a gloomy outlook for the market. Lumber prices saw a 34% decline in March of 2020, which was followed by a reduction in supply to bolster prices. Shortly thereafter, we all remember the toilet paper shortage (it’s made from wood).
Another industry that braced for a slowdown was residential construction. However, numerous factors have come into play that have unexpectantly kept market demand well above expected levels. Again, more demand than available supply.
- Mortgage Rates Lowest on Record – 30 year fixed at 3%
- Shift to Suburbia – need more space, not worried about the commute
- Home Renovations – need more space, home renovations such as office / patio / daycare / school
No one knew what the pandemic would bring. The lumber and housing industries were no different. A slowdown in production compounded with an increase in demand is how we arrived at a 100% increase. Let’s leave market speculators to another discussion. Just like toilet paper, this market surge will eventually work itself out, maybe even reversing due to oversupply. In conclusion, if you need expensive lumber, our expectation is that this shouldn’t last much further than Q1 2021.
Previous Vermeulen Insight Blogs