When we think about the supplies needed to facilitate construction, a number of big-ticket items come to mind, like steel, concrete, and wood. So when one of those items is suddenly in short supply, it can wreak havoc on the housing and construction market. That's exactly what's happening now thanks to a shortage of lumber -- treated lumber in particular.
Lumber is suddenly hard to get
Lumber is a basic construction material that the typical contractor relies on for new home builds and home renovation projects alike. But now there's a nationwide shortage of lumber, and it's bringing construction to a grinding halt.
How did this happen? Many major lumber mills cut back on production when the COVID-19 pandemic first started. For some, it was a matter of ensuring safe working conditions. For others, it was a matter of conserving cash flow by implementing layoffs.
The end result? Right now, all softwood lumber is hard to come by, and treated lumber is especially difficult to get. That's bad news, because treated wood is more resistant to harsh weather, insect damage, and general wear and tear than traditional lumber. Untreated lumber may be easier to get a hold of, but it's not as popular in building projects. Wooden deck boards, for example, are almost always made of treated wood.
Not only is lumber hard to find but heavy demand is allowing producers to command a higher price for it. And all of this is very bad news for real estate investors.
How a lumber shortage will impact many investors' bottom lines
The cost of lumber has fluctuated a lot in recent years, but these days, it's pricier than ever. In fact, the cost of all untreated framing lumber has risen 50% since earlier in the year while the cost of treated lumber has increased just as much, if not more.
Inflated lumber costs obviously spell trouble for real estate investors who now need to sink more capital into new construction projects. But also, the ongoing shortage could result in construction delays. That's bad for developers on both the commercial and residential side.
The ongoing lumber shortage is bad for contractors, too. Those who can't get a hold of the materials they need risk losing out on income at a time when getting jobs may be more difficult due to the underlying financial crisis the country is grappling with. And of course major home improvement retailers stand to get hurt, too. The emptier their shelves, the less they stand to profit.
How long will the lumber shortage last?
It may take a number of months for lumber to become more widely available. Those who have yet to begin construction projects may want to hold off until the current wood shortage gets better. Otherwise, they risk price increase after price increase.
Furthermore, on a national level, construction tends to decrease as the weather gets colder, so as we creep closer to winter, the demand for lumber might wane. That, in turn, could help make wood more affordable, which is why it could pay to hit pause on construction right now or delay the start of construction until the supply chain manages to catch up.