While the economy recovers from a global pandemic and recession, lumber prices in 2021 are skyrocketing. Earlier in March, lumber prices in 2021 reached record high levels of $1,040 per thousand board feet. As of Q3 in 2020, lumber prices averaged around $761—meaning the rise in prices has been quite substantial.
Many construction and manufacturing companies are wondering what’s behind the spike, and how it will affect their material costs going forward. The future is always uncertain, but there are several trends you can expect to drive lumber prices in 2021.
It’s no secret that lumber prices in 2021 are at record-breaking levels, largely due to pent up demand and tightened supply.
Construction and manufacturing were two of many industries that slowed down during the pandemic. Lumber mills closed in early 2020 throughout initial lockdowns, causing production to take a hit.
Softwood lumber supply was cut short, while at the same time, the housing market underwent a boom and home builders were busier than ever. People moved away from cities and into suburban single-family homes. Low interests rates fueled the demand for mortgages and pushed commodity markets to record high levels.
According to Paul Jannke, principal at Forest Economic Advisors, lumber mills were caught off guard. They scrambled to get back to production while having to limit workers in order to comply with social distancing guidelines. Most believed the boom would be short-lived.
“Lumber dealers didn’t exactly believe demand would stay as strong as it was after last summer,” explains Jannke, “so they let their inventory drop to record low levels in the fall.”
However, demand remained strong. People continue to look for newly built, single-family homes. Home prices nationwide were up 14.4% year-over-year in February 2021, while the number of homes for sale fell by 49.6%. Many people are also using money they would have otherwise spent on traveling or activities to expand and remodel their existing homes.
All these factors have pushed lumber prices in 2021 up to record highs. Currently, according to Jannke, “the supply of lumber just simply doesn’t exist to meet current levels of high demand.”
While high 2021 lumber prices are affecting the entire economy, construction and home building companies have felt the brunt of this steep rise. Many businesses continue to face supply constraints and increasing material costs, all while demand is high. This has led to a phenomenon where builders are pausing construction projects—which is only worsening the gap between real estate supply and demand.
Market data suggests it’s unlikely that lumber prices will fall significantly in 2021. The housing market continues to see high demand while lumber supply lags behind. Interest rates are also expected to remain low throughout 2021, which will support both higher commodity prices and real estate.
There may be some volatility, with temporary peaks or drops in lumber prices throughout 2021. However, the overall trend appears to suggest lumber prices will remain higher in 2021 over 2020.
If you’re concerned about lumber prices rising even higher, consider securing the building materials you need sooner, rather than later.
Higher lumber prices means your business has to foot higher upfront costs in order to complete a project and receive ROI. Higher lumber prices also make it more difficult and expensive to bid and secure new contracts. In short, you need more cash on the upfront to ensure you’re completing new projects and staying competitive.
But while high lumber prices in 2021 can put a strain on your budget, it’s important to keep in mind other expenses you’ll have to foot. Costs like insurance, other materials (such as steel), hiring, and bidding can also impact your business’s cash flow. You may find yourself struggling to cover unexpected expenses or grow your business in other ways.
When the time comes to place an order, you don’t want to find that you lack the cash needed to secure the right materials. You could risk losing a job, and not to mention, the revenue it brings.
Cash flow issues can also put an abrupt halt on projects. You might face delays, frustrated clients, greater costs down the line, or other obstacles if you’re unable to deliver on time.
The good news is that you can mitigate the negative effects of high lumber prices in 2021 by obtaining a business line of credit.
A business line of credit gives you access to a reservoir of working capital your construction company can draw upon as needed to combat the problems associated with high lumber prices in 2021.
You can use your business line of credit to cover the cost of lumber materials and other expenses now, keeping other funds available for expenses down the line. You can draw upon more funds as you need, and pay interest only on the money you borrow. Waiting for lumber prices to fall can only delay new jobs, limiting your ability to earn revenue. Despite high prices, buying lumber now can actually save you money in the long run.
It’s also crucial to prevent competitors from taking jobs simply because they’re in a better cash flow position. A line of credit can provide you with the financing you need to buy lumber and secure the revenue your business needs in 2021.
You can also use your business line of credit for other purposes. You can hire employees, invest in growth, bid for future projects, and even complete current projects faster.
A business line of credit can also help you prepare for next year’s winter slowdown.
National Business Capital & Services specializes in helping small businesses get the financing solutions they need via business loans and lines of credits. With only 1 year in business and at least $120K in revenue, you can qualify for options.
The best part? Fintech lenders won’t impose a minimum FICO score requirement. We believe there are other, more important ways to evaluate your business and its potential for growth.
Unlike traditional banks which require a lengthy application and approval process, working with National could allow you to receive funding in as little as a few hours! That means you can start placing orders for lumber materials now (before prices go up) and secure more jobs in 2021.
Filling our 60-second application and an expert Business Financing Advisor will consult you on your financing options and answer all your questions.
Get started by applying now!
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Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!