The lumber shortage spurred by the COVID-19 pandemic isn't letting up. It's quite the opposite: It's getting worse. As of the week of March 11, the price of lumber per thousand board feet is at $1,044, according to Random Lengths. That's an all-time high, and up 188% since the onset of the pandemic. The National Association of Home Builders calculates that current lumber prices are adding at least $24,000 to the price tag of a typical new single-family home.
This price shock is a classic example of the supply and demand curve. On one hand supply has fallen as a result of COVID-19 restrictions hampering sawmills, while quarantining Americans pursuing home renovations or do-it-yourself projects increase the demand for timber. The matter is made worse by low interest rates and tight existing home inventory which has caused new home builders to ramp up production. The demand for new homes is so high that even during an economic crisis we hit a 14-year high in new housing starts in December.
The burning question among everyone from home builders to DIYers is: When will lumber prices correct? To answer that question, Fortune reached out to Dustin Jalbert, senior economist at Fastmarkets RISI where he specializes in wood prices.
Jalbert told Fortune a lumber correction will come, the only question is when. If the vaccine rollout is successful, he says, some price relief should come later this year.
"For some mills, this latest wave of COVID-19 from November to January restrained production at a time when mills would have liked to add overtime or shifts to meet unseasonably strong demand," Jalbert said. "As COVID-19 cases continue to plummet, vaccination roll out over the coming weeks and we achieve some level of herd immunity, I expect mill production to ramp up and distribution delays to start dissipating. Supply should increase in the coming months."
Jalbert also sees lumber supply increasing this year as new producers, particularly in the South, get into the business. The record prices are hard to resist for producers. That expected ramp-up in production, he says, should continue into 2022 and 2023.
But what about sky-high demand? Jalbert says home building remains strong and has a "pretty deep pipeline" into late 2021 or even early 2022. So don't expect the price relief to come from construction.
"Repair and remodeling (R&R) is where we could see some potential softening depending [on] how households respond to the reopening of the service side of the economy," Jalbert said. "But there is a pretty good chance some of the excessive spending for DIYers that fueled lumber last year [will] slow [down] later in 2021 as people are vaccinated, start traveling more and generally participating more on the service side of the economy and spending less time in their homes."
But even if repair and remodeling slows down, Americans who've held off on home projects as a result of the sky-high lumber prices could jump into the market once some price relief comes. That sidelined demand, Jalbert says, should be enough to prevent a sharp correction.