The failure of U.S. national sawmills to sufficiently increase production in the face of continued strong demand from homebuyers has been a primary factor contributing to record lumber prices and price volatility in 2021, as the National Association of Home Builders (NAHB) reported.
Soaring lumber prices, combined with delays and higher costs for other building materials, continued to be a significant limiting factor for home construction throughout 2021 despite falling lumber prices. mid-year over three months.
With a historically low level of the overall housing stock and strong demand due to low mortgage interest rates and favorable demographics, new construction has not been able to add the additional supply needed in the market. , which resulted in unsustainable gains in house prices.
The following economic data follows estimates for the sawmill industry (NAICS 3211) and clearly indicates that domestic production has not kept pace with gains in residential construction since mid-2020.
One reason given for the lack of lumber production in the United States has been labor issues, a limiting factor for the overall economy in the manufacturing and construction sectors.
However, data from the Bureau of Labor Statistics indicates that employment in the sawmill industry is higher than a year ago. In October 2021, the most recent data available, sawmill employment was 90,100. This is an increase of 2.4% from October 2020, or a net gain of 2,100 jobs. Residential construction employment increased 4.0% or 118,500 net jobs over the same period.
With the increase in the number of workers, sawmill production increased in the 12 months ending September 2021, albeit on an unstable trend. Data from the Bureau of Economic Analysis shows that the seasonally adjusted sawmill production rate in September 2021 (the most recent available) was 1.2% higher than in September 2020. However, production in Q3 2021 was 1.00%. 3% lower than in Q3 2020.
Total sawmill production in 2020 increased 3.3% from 2019 due to a recovery in production at the end of the year. This increase continued in the first nine months of 2021, with production through September being 3.1% higher than the same period in 2020. Compared to 2019, however, production was only 1.6% higher.
The increase in production in 2020 was not enough to meet the demand for residential construction and is still the case in 2021. The following graph shows the starts of single-family homes and the production of sawmills indexed for that the 2012 levels be 100. The growing gap between the two measures, especially in 2020, is the cause of the dramatic increase in lumber prices. It’s important to keep in mind that single-family home starts rose 13.6% in 2020 and 15.7% year-to-date in 2021.
This impact on price can be observed by adding an indexed measure of the composite lumber price at random lengths. These data indicate that given the inability of the domestic industry to rapidly increase lumber production, the result has been an unprecedented increase in lumber costs. After falling from record highs in 2021, prices started to climb in August and more than doubled in the months that followed. The production gap and impact on material costs can only be closed through a significant increase in domestic production, more US imports of lumber, or significant substitution for other building materials.