When we were young, we were told money doesn’t grow on trees. Well, if you sold lumber and plywood, then this year, money exponentially grew on trees as we saw lumber prices go up by 400%. So, in a crazy couple of years marked by a global pandemic and a radical shift in business practices and technology uptake, how and why did lumber prices get so high in 2021?
Here’s the 10-year price chart of lumber so we can see for context the prior price action. You can see the initial price drop, as did everything in March of 2020 when the pandemic first became a global phenomenon and there was just a wave of uncertainty across everything.
And then the classic V shaped recovery, followed by 2 intense waves of spikes, causing the price of lumber to hit a high of $1,686 / 1000 board feet.
Why did lumber prices go up so much?
So, this is kind of an interesting story. As we went into March of 2020, with the global pandemic spreading fast and furious, economies were quick to shut down their entire countries, and forced people to stay home. Factories, work, trade and production came to an absolute standstill.
The only exceptions were essential services like hospitals and food. Saw mills stopped producing lumber, and everyone stayed home and stared at their four walls.
Those who could work remotely mostly carried on, while those who couldn’t… well, they had to find something to do.
Staring at their walls probably reminded them of their long procrastinated home improvement projects. The shed they wanted to extend, the tree-house they promised their kid in the summer.
They had a lot of time on their hands, and some projects to finish.
Pandemic induced real estate boom
It always comes down to the equation of supply and demand. As factories remained closed, supply of lumber dropped, and all of a sudden, men around the world turned into Fix-it Felixes, and started clamouring for lumber and plywood en masse.
Even worse, the recession forced mortgage interest rates to go way down, which meant everyone could afford to borrow more (and pay less interest) and purchase that dream home they’ve always wanted.
This created a real estate boom right in the middle of the pandemic, where homes were often bought, sight unseen! This added even more upward pressure on the price of lumber.
In fact, the lumber price went up so fast so furious, an FF meme regarding lumber price had to materialise.
Thankfully (unless you sell lumber), we are already seeing signs of the price dropping and stabilizing around the $700-$800 price range.
Still roughly 100% more expensive than before the pandemic, but at least the price is moving in the right direction.
What about the long term trend of lumber demand?
As we scale out of the pandemic and economies start ramping up their output and production, and people gradually go back to offices, will this mean that we will expect lumber prices to go back to pre-pandemic prices?
Well, not quite.
As the longer term trend of remote work and work from anywhere is showing strength, DIY home projects will likely remain in demand, and so we expect to see the baseline demand of lumber and plywood raised accordingly as well.
If you could have seen this coming, you would have made a good buck trading on the lumber surge.
There are many other interesting impacts the Covid pandemic had on many other industries that we will be looking to do more research in future. If there are any particular industries you would like us to cover, let us know in the comments.
For starters, here’s an interesting piece about how the massive job losses due to Covid spurred an industry, and in particular, OnlyFans, to grow by more than 600% YoY.