Lumber is down from the stratosphere, but still pricey for Minnesota builders and homeowners

Lumber prices, a key cost in home construction and an influence on inflation in Minnesota and the nation, have plunged from their peaks this spring but remain well above pre-pandemic levels.

The development is welcome news to people who want to build a new home because, aside from land acquisition and labor, lumber is typically the highest component cost.

Prices on certain types of wood products remain elevated, including special order deckings, made-to-order windows and doors, engineered lumber, roof and floor trusses. Lead times on those products are long.

"All of the specialty goods, which are 50 percent of our business ... all that has a manufacturing component to it and is not a straight commodity, has gone up and stayed up," said Sunny Bowman, president and owner of Dakota County Lumber in Farmington.

Broadly, inflation appeared to moderate last month as the consumer price index rose more slowly than in July, shaped in part by falling prices for cars, hotels and air travel.

The price for softwood lumber fell nearly 28% last month and is down by nearly half since May, according to the National Association of Home Builders. Lumber prices on the CME Group's commodity exchange are now approximately the same as this time last year, but that's still 50% higher than two years ago.

The pandemic triggered a frenzy for forest products. Home building, a key market for lumber, was at record levels in 2019 before the onset of coronavirus. When the pandemic forced people to shelter in place in spring 2020, construction slowed only briefly. Meanwhile, many Americans took on renovation projects, emptying lumberyards and retailers.

"Cash prices for lumber have increased 15 percent in the last 10 days," David Logan, senior economist for the association, said.

Meanwhile, prices for other building materials — ready-mix concrete, gypsum and steel mill products — are also higher. Since the start of the year an index for ready-mix concrete has increased 4.7%; prices for gypsum products increased 14.9%; and steel product prices have nearly doubled.

"The supply chain in so many areas is really challenging right now. Steel has gone up, appliances have gone up," said David Siegel, executive director of Housing First Minnesota — an association of home builders and remodelers. "It's a struggle right now. … So many pieces in the home building space have gone up in price."

Higher costs are reducing the number of people who can afford a house. But Minnesota home builders remain on track to have one of the best years in a decade. Through August, builders in the Twin Cities had taken permits for 9,192 new housing units, about 60% of them for single-family homes, a pace surpassed only by 2019.

"The underlying cost drivers that have made housing expensive even pre-COVID, those still exist," Siegel added. "Things like limited land supply. The way that the Met Council and the way that cities allocate land supply is a restricted supply and regulatory challenge."

The dynamics of the housing market make it difficult to forecast when supplies and prices of lumber and other construction materials will return to levels seen before the COVID-19 disruption.

"The one thing I can say with practical certainty is that supply chains will not fully rebound until the U.S. gets its workers back into the labor force and working and the vaccination rate has increased," Logan said. "Supply chain issues have come down as vaccination rates have gone up, but there is still that gap to be closed."