What toilet paper was to us in 2020 is now what lumber is in 2021. A number of colliding factors have caused a massive lumber shortage. Add a high demand to that, and the conditions are continuing to drive up prices. The price of lumber is not just up 25 or 50%; it’s up 193% since last year, and it’s about to go even higher! Now, anxious homebuyers trying to cash in on low interest rates and buy homes more suitable to post-pandemic living are not only experiencing construction delays, but making up for those low interest rates with a new home price tag that’s increased by an average of over $24,000.
Why the Whopping Increase?
– Mill operators and lumber dealers misread 2020.
When home construction and remodeling were weaker in 2019, operators and dealers expected 2020 to be more of the same. They didn’t foresee stay-at-home and work-from-home pushing the public into a remodeling and relocating frenzy. Additionally, during the 2020 stay-at-home peak, most mills shut down temporarily, and once they returned to work, they limited the number of workers to comply with social distancing.
– No one expected a DIY and homebuilding boom … at the same time.
While Americans were stuck at home, not only did they have more time on their hands, but they also needed to configure office space, learning space, and play/outdoor space in their homes quickly. Americans rushed to their nearest building supply store for lumber to build decks, playgrounds, porch enclosures, temporary walls, desks, etc. Those who didn’t renovate became part of the masses who decided to relocate to smaller cities where they could afford more suitable homes. Since many factors had already led to a shortage of available homes for sale, homebuyers turned to new construction.
– Furniture purchases have also increased.
What goes with renovating and home-buying? New furniture, of course. Families buying desks and shelving for home offices and classrooms are examples of some of the record high furniture purchases being made. All the furniture being bought (much of it made from lumber) gets shipped on wooden palettes. An increase in the amount of furniture being shipped increases the demand for palettes.
– The U.S. is still rebuilding after natural disasters.
A total of 63 catastrophic events, including tornadoes, wildfires and hurricanes, occurred in 2020. A need to rebuild led to a serious demand for building materials and labor.
– Low interest rates fed consumer appetite.
Record low interest rates means people can better afford the now exorbitant house prices. When people know how quickly the market and interest rates can change, they’re encouraged to move fast.
How It’s Impacting Your Insured
When construction costs rise, so do the homeowners’ replacement cost valuations. As replacement cost valuations increase, so do insurance premiums. It’s important to remind homeowners to start the renewal process early, and be prepared to inform them why they’re seeing quotes higher than they’ve seen in the past.
How Long Will This Continue?
Experts don’t expect the situation to improve anytime soon. According to Dustin Jalbert, senior economist at Fastmarkets RISI, there are enough projects in the pipeline to keep demand high for a while, making it hard for mills to produce enough wood to rebalance the market. He sees an eventual lumber correction, but isn’t counting on the return of April 2020 prices.
Risk Innovations works with specialized Personal Lines carriers with robust, comprehensive coverage for homes. Our team of experts will ensure that your clients have the coverage they need in the event of an untimely loss. Contact us today to put us to work for you and your client.