Lumber crash leads to 'blowout' sales as prices crater

Common practice in construction industry is to overcommit to too many projects, then raise prices until the most cost-conscious customers drop out. Now you’re only left with the customers willing to pay the highest prices.

It’s not really about lumber prices. It’s about finding the highest construction prices that the market will bear. Can’t find the limit until you push so hard that some customers start dropping out.

> I'm not seeing any 'blowout' prices on new construction in the short term

We are in a housing shortage [1] which is driving a home-construction boom [2] powering a construction-labor shortage [3].

Until that labor shortage is resolved, via higher pay (which, depending on the rate of new entrants, will either reduce margins or be permanently passed along to consumers) or via new recruits, raw-materials cost advantages aren't going to be passed along to consumers.

[1] https://www.federalreserve.gov/econres/notes/feds-notes/hous...

[2] https://fred.stlouisfed.org/series/PERMIT

[3] https://fred.stlouisfed.org/series/JTS2300JOL

We backed out of working with a builder because price went up about $100k over the course of 3 months earlier in 2021. There is no way that was justified , lumber and supply chains notwithstanding. I respect his right to maximize profits in this market, but I won’t be part of it.

who has all this money to spend? everywhere everything is so expensive. i make a ton, and this doesn't add up. nothing about home prices seems to add up.

You also have to remember that the construction industry itself is constantly in a boom and bust cycle and we are in the boom cycle right now, it would have been more expensive now than a year or two ago even without the pandemic or any other economic factors, just those other factors have nudged it up a bit higher.

Couple years from now it will settle down and carpenters and tradesmen will be fishing for jobs again and lowering prices for consistent work instead of like now where they can throw out a even the shittiest net and catch over their limit.

They're not lying though when saying everything else skyrocketed. There's been shortages of everything.

With that said, labor shortage in the trades is probably the biggest culprit at this point. Even before the pandemic, in some areas you couldn't get a contractor to come in to do anything unless it was a massively profitable project. I had contractors walk away from 6 figure projects because they weren't big enough.

The pandemic made it a lot worse. Plumbers here are booked 6 weeks ahead for anything that isn't an emergency.

Everything has skyrocketed. Specifically when you are in the middle of a construction project you need to get all of your materials to a worksite at a specific time, there’s very little schedule flexibility. This means they are outbidding people that do have schedule flexibility.

The housing market has cooled and you can get some good deals now, but in 60months we’ll back in a growth market. There simply isn’t enough supply to keep up with demand. People keep having kids, cities keep limiting housing density, suburbs can only sprawl so far.

Yes, these companies and contractors have already spent a ton of extra money panic-buying lumber at a highly elevated price due to the shortage. Many of them probably didn't even have a choice but to buy in order for their building contracts to stay valid.

For most it's far more expensive to get bogged down in litigation than just buying the lumber at whatever the asking price is. So now they've got to cut corners or find another way to make money despite of their elevated holds of lumber.

The result may very well be deflation, as contractors are now forced to undercut each other to get new building contracts, as lumber production has been increased to meet the demand. That is if you can afford to wait.

Think of it like a traffic jam. The cars behind the lumber car won't be able to move before it can move, and then—due to market insecurities—the lumber car might not even be able to go full steam ahead. Because no lumber producer wants to producer more lumber than necessary, since that'll only lead to the price dropping unnecessarily. And so we're stuck in a situation where the line leap-frogs slowly forward until the guys in the front finally feel safe enough to push the pedal to the metal.

Yes, builders will react by trying to artificially maintain the high prices. But they will ultimately be overcome by the market reality. Unless they all band together but that's impossible given the scale and illegal.

I feel your pain... I was looking at building a house (with a national builder) and the historical prices in that neighborhood showed that the price went up about 30% in the past year. I think most of that was just the general price of housing, not just raw materials.

We decided to stay put in our existing home for the time being. I don't think housing prices will likely go down much, but maybe level off a bit? The rise in the Case-Shiller index certainly doesn't look sustainable: https://fred.stlouisfed.org/series/CSUSHPINSA

I need to do some renovation but contractors keep saying that aluminum's price went up by 70%, steel by 80%, etc. So it is not only lumber. I postponed everything until prices settle down.

This is the same thing happening with cars. There isn't enough new car inventory so used cars are going higher and higher. Dealers are buying used cars for MORE than people paid new. As already built houses for sale continues to rise, new construction and rents will rise too. The market is adjusting to make all choices equally bad.

Get someone you know to call the builder for a quote. Maybe they know you really want it so jacked up the price.

Does it not start to become cheaper to rent some storage and buy the items when they are low, like timber now and then the other core bits, biding your time. Though storage costs a factor and equally equity to buy the materials over time at the right prices. But then those materials are assets and if you buy cheap, even if you don't go ahead - resell will break you even at least.

Much the same way air-con units and fans cost more in the summer compared to winter - prices do seasonally fluctuate and those can have a knock on effect. So cheap timber will drive up the other items with demand, so you can almost foresee once timber goes up, the ancillary items will come down due to demand again. That and winter, will curtail some demand and that may well be the time for buying some items.