Over the last two years, the cost of building materials has skyrocketed from their normal trend due to the affects of COVID-19. You may be wondering what is behind all this and how it may affect your next building project.
What it all comes down to is the simple economic principle of supply and demand. The capacity to stock a material (supply) versus the ability to take it off the shelves (demand).
When the coronavirus first started making its impact on the global economy, the lumber suppliers made the wrong assumption that the demand in their products would drastically plummet. In anticipation for a recession, supplies were sold off, employees laid off, and production was stalled.
What ended up happening was the exact opposite. People were spending more time at home and wanting to update their spaces. City dwellers moved out to their multi-family apartments and started new construction on their own single-family residence away from the public. On top of that, the government’s stimulus checks opened the opportunity for these new projects.
With an anticipated shortage on the supply and now the actual demand being extremely high, there was no other choice but to make lumber a commodity. In just a year, we have seen prices for lumber skyrocket up to 300%, sometimes more. To put it in perspective, a single 2×4 (8ft long) may have cost $3 before COVID. Now a days, it is trending around $10 a piece.
The higher price has yet to scare consumers away and the supply has never been able to catch up to the demand, especially with the shortage in workforce. We expect this trend to continue for at least a year, if not more.
On top of that, online shopping has become the new norm as people were avoiding public shopping. To have an inventory to sell, companies such as Amazon, Target, or Home Depot, require large warehouses to store and package their goods to ship. With more and more people going to their websites, company executives made the choice to revamp their online sales and increase their online inventory. This involved purchasing and/or building new warehouses to store such a large inventory.
With multiple companies reacting in the same manner and at the same time, a shortage in these types of materials quickly made itself present. The stock for steel framing, overhead doors, cold-formed steel studs, and much more have all dried up. For another perspective, lead times for steel can easily range from 6 months to a full year once ordered. Cost estimates on materials are now subject to change within a week when material suppliers would once hold to them for 2-3 months.
For those that can wait on their building projects, in most cases, it may be the best decision. Others are eager to get moving and are feeling the effects as they dive in. Regardless of what you may be choosing for your next building project, the market is at least a year away from resetting.