Building commodities prices are inflated from increased demand and ongoing supply chain issues.
Mid-September: it was a good time for lumber prices, while it lasted. After levels earlier this year hitting $1670.50 per thousand board feet—high enough to choke the oxygen out of many building plans—they finally started to drop and hit $454.40 on September 15 on the spot market.
But on the same day, the futures market was $595.90. In this case, foresight was 20-20. The spot market started Friday, October 1 at $625 while futures were at $627.50. A draw—and maybe for the next year close to the new normal according to Bryan Shaffer, principal and managing director at George Smith Partners.
“I think the $500 to $600 range is going to be more the new normal for at least the next 12 months,” Shaffer tells GlobeSt.com. “Nothing’s normalized yet. And you have the inflation and labor issues cropping into pricing of everything. It’s very hard to get labor today so it’s made it harder for all the producers to get goods out.”
Another issue has been the generally disrupted supply chains for raw materials and finished goods as well as greater demand from builders, much of which is projects that had been put on hold earlier this year. In short, increase demand without matching higher supply and prices will inevitably rise.
Then there are all the other affected commodities. Copper isn’t at the $4.60 to just over $4.70 of mid-March, but still far above the $2.60 in early October 2019. Gypsum building materials are at an all time high, at least since 1994.
“For real estate, it’s not the copper prices so much as the plumbing materials, they’re all still inflated,” Shaffer says. “The raw materials were hard to come by and [producers] weren’t finishing them. People need all these materials to make their products and are waiting now. They’ve had to lay people off or stop production.”
“All those things are going to lag coming back,” Shaffer adds. “The suppliers are going to wait. They have the excuse for a higher price and until the market pushes back, they’re going to keep doing that.”
Plus, macroeconomic conditions don’t help. “Part of it is people view the dollar as getting a little bit weaker,” says Shaffer. “We’re going to add more debt, take on more projects on the federal side. It makes oil spike up; all commodities spike up. Steel’s also been spiking up. There have been issues in China trying to regulate environmental controls and they’re pressuring steel manufacturers to reduce their output.”
In other words, while developers and builders likely won’t get walloped with the stratospheric pricing of earlier this year, getting buildings finished is going to cost more than it used to.
Source: “Lumber Prices Start to Rise Toward What Might Be a New Normal“