Lumber Trends (Q1 2022) - EP21

building materials construction costs construction process income & expenses market research market updates Jan 18, 2022

"...Three reasons for lumber price increases. Ongoing supply chain disruptions, a doubling of tariffs on Canadian lumber imports into the U S market that increased price volatility, and an unusually strong summer wildfire season in the Western United States and British Columbia." - National Association of Home Builders

It's 2022 and investors around the country are wondering what's going to happen with real estate, mortgages, rents, material costs. We've noticed a few key indicators that are especially important to keep your eye on. One pain point particularly relevant in today's market is lumber. Lumber prices are creeping back up again. What do the latest headlines say?

Subscribe to our show on YouTube:

Steve Olson: Welcome to the Build-to-Rent Show. Steve Olson is here with Sherida Zenger. We're here today to talk about a few thoughts that we have coming into 2022. But before we do that, if you have any feedback, comments, questions, insults, anything else that you want to tell us, you can say that to all of us or just one of us at

As always, remember to subscribe on Spotify, iTunes, or wherever you get your podcasts. 

So it's 2022. Finally. We thought we'd never get here because 2020 and 2021 were interesting. We would all agree on that. It's 2022 and everybody's wondering what's going to happen with real estate, mortgages, rent, and returns on investment this year.  

We noticed a couple of key things that we think are worth keeping an eye out on. And one of those is lumber.  

We're going to keep complaining about it because actually there's some new news about the lumber market and recent rises in lumber costs. 

Just within the last week --to remind everybody-- lumber peaked in May and it was crazy all summer and then trickled down a little bit and everybody forgot. 

Sherida Zenger: Then December it started creeping up a little bit more, cause it went up to like in the nine hundreds, and guess who's back?

Lumber. Lumber is back.  

Steve Olson: This is from the National Association Of Home Builders, just a headline from January: Latest Wave of Rising Lumber Prices Adds More Than $18,600 to the Price of a New Home

And I would add that this is since December,  

Sherida Zenger: That's a ton. That's going to kick any builder in the teeth.  

So this is what was interesting. And we didn't talk about this before. So as you're talking about this, it's prompting me to think of something... 

I met with a builder last week, a different builder. We were going over a project and they said that they're the first ones in the country that had started a pilot program with Home Depot and Home Depot's lumber is a lot less than what they could get from like a BMC West. Which I thought was interesting.  

He said he was going to give you the numbers to kind of see the difference. Part of me wonders if some of this lumber hike is due to the fact of material, right. I know that we've had fires and some crazy stuff that has affected that, but I also sometimes wonder is the supplier knows that people are going to pay more, do they keep inching that up a little bit too? Why is Home Depot able to give such a better price?  

Another example of this is one of the guys that work in our home office was building an accessory building in his backyard. He went to the builder and said, Hey, can I use your account and go get some plywood, went and got some plywood. He then walked into Home Depot. 

A couple of days later it was $15 a sheet less at Home Depot.  

I get that we want to talk about this, that it keeps going, that it keeps rising and it does, and there's nothing we can do, but I almost wonder if somebody like a Home Depot that can buy it in a bigger bulk than you and I are or any builder can.  

Maybe they have their own lumber mill. I don't know what the backstory is, but I thought that was interesting. So I think that's something we need to keep our eye on. Is Home Depot trying to get into this game? 

Steve Olson: I had heard that places like Home Depot and Lowe's sell lumber as a loss leader. They make hardly any money on it. It's designed to get you in the store.  

Sherida Zenger: Yeah, but to a big builder, that's doing a big project? 

Steve Olson: Does a big builder order an entire lumber drop from Home Depot? I don't even know if that happens.  

Sherida Zenger: They did. It was in California. And that's the Home Depot that they were using and Home Depot's, I think headquarters or somewhere back east or Midwest. 

They did this pilot program in California and they were building it was either a clinic, like a medical clinic cause that's what they build, or a hotel. I don't know which one, but they were doing one or the other anyway.  

Steve Olson: That's crazy. Do you wonder how much lumber you could order from a home Depot before they say uncle? 

Yeah. We've done projects where we buy, hundreds of doors, worth of lumber at a time. And I had just, I don't think we can roll down to Home Depot and talk to Bob at the desk and get that much lumber.  

Sherida Zenger: I think this is a separate division that they're trying to open up. Like this was a pilot program. 

Regardless of my little weird theory and trying to figure out this Home Depot thing, the increase is there and people it's affecting us right now.  

Steve Olson: What was Home Depot's starting point because they would have increased in and it's just starting and endpoints. They're all relative.  

The article says there are three reasons for lumber price increases.  

  1. Ongoing supply chain disruptions 
  2. A doubling of tariffs on Canadian lumber imports into the U. S. Market that increased price volatility 
  3. An unusually strong summer wildfire season in the Western United States and British Columbia.  

Sherida Zenger: Makes sense. 

I knew there were some fires that had affected some of it. We had talked about the tariffs, I think in one of our other episodes, you know, command a candidate. It's like, what are we doing?  

That's a bad time to do that. 

Steve Olson: So pivoting off of lumber, here's another headline from Housing Wire Mortgage Delinquency Rates Reach Pre Pandemic Levels

I think everybody was at least initially expecting an eviction tsunami as a result of COVID-19, which has never really shown up.  

Sherida Zenger: I think they were expecting a 2006, 2007, 2008, something like that. I'm going to wait because I'm in a buy something that's distressed at a lower price. 

Never happened.  

Steve Olson: There was just too much cash. There was so much equity that people could sell or refinance. And so pre-pandemic. I think it's highly localized. When we talk about more mortgage delinquency, only one time in my life has that been meaningfully done on a national level, which was the great recession, but now it's just local.  

There isn't going to be some, a tsunami of foreclosed homeowners that needs to rent a property.  

Sherida Zenger: Have you seen that little meme that's going around, you know, where people keep saying, Hey, I'm going to wait to buy something. So it's that 10 years, like show us a picture from 10 years, right? 

It's of a home at $200,000 and now it's 750k and it's like, are you going to still continue to keep waiting? So that's the truth, like same with investing. Are you going to continue to keep waiting for that good deal? Because of the good deals right now, when you look back 10 years from now, I should have invested now.  

Steve Olson: Chasing the old deal. Yeah. It's well, it's just that whole timing. The market thing. Any financial advisor would tell you, that's just, I mean, investing responsibly and consistently seems to Trump timing the market. I've timed it before. And it's really fun when you do it as also timed it the other way. 

Sherida Zenger: You've lost her back end. Or you hang on, you wait. Right. So again, that's the responsible part of it. I'm going to be responsible. Yeah. I have the cash to do it. We were actually having this conversation with my daughter last night. Bless her cute heart. She decided that she wants to buy an investment property this year again. 

And so we were saying to her, you have to have reserves, like what happens if your tenant decides they don't want to pay for three months. What are you going to do?  

And she goes, well, like they can do that? She's 19. And I said, yes. My husband and I said, you know, you need to have $50,000 set aside in your savings account. 

Just plan, right? Be educated, plan because we can always refinance out of a handful of situations and rates are rising right now, but they will come back down at some point. They were expecting two rises even in January alone. 

Steve Olson: That's a headline I have up here. Right. So that I think is at 3.44% four for a 30-year fixed-rate mortgage. And that's the lowest, that's an owner-occupied conforming loan.  

So if it's an investment property, it's clearly more than that. In a way, I hope that rates go up in 2020. Because we need things to calm down a little.  

Sherida Zenger: While I think they're going to because I think everyone's realizing it. We can take it and it, we need to kind of slow things down a little bit. Like we need another little bit of a reset. Right. Like a reality check. Yeah. Cause I think things have gotten kind of crazy out of control and when people have an insane amount of equity in their property, which is awesome, but there's still a huge need there. 

We need a little bit of a correction.  

Steve Olson: We're all hoping for a little bit of a, I don't call it a pause, time to gather it. It, but we don't want to blow. The tank on us. Yeah. And, and I think that the federal reserve, you know, they're raising rates. I think they're very cognizant of that. 

My, my theory, you hear it here first on the Build-to-Rent Show is that they are much more afraid of a rapidly declining housing market than they are of inflation because inflation, you can kind of hide. I don't feel it right away, but man, if, if they Jack rates up and it makes everything go sour that's definitely more in your face. 

Then some, I don't want to call it massive inflation. I heard like 7% yesterday. That's massive. Yeah. They want to dial that back. And so an interest rate increase of some kind is, is needed, but you know what, what's that magic number because we say, you know, well, if they raised the rates, it's gonna cause all this inventory on the house. 

No, no, it's not. There's not a lot of inventory on the housing market.  

Sherida Zenger: There's a lack. I think they're going to slowly trickle that. See where they get to a point where people start to maybe pull back and then say, okay, maybe we just hang out here for a minute. It's going to be a push-pull because there's a thing too. 

People have enough cash that if they really want a specific rate they can buy down the rate. Right. Yeah.  

Steve Olson: What does it do to these poor tenants? That, that can't do that? I mean, the here's the thing is rates going up. I think eventually that shows up in the form of higher rents too. 

I mean, it's the classic thing. Like when you hit a business with an expense, they eventually find a way to pass it onto their customer. I signed up for a new membership yesterday at the gym. Okay. I wanted to pay on auto-pay with American express and there's a big fee for the vendor to take American express. 

Do you think they're just going to eat it? No, they said, your membership is X and we have an extra charge for Y for the merchant charge. They don't just take that not for long. Anyway. So if you're, if you're having to take on debt at 5% as a landlord it doesn't happen right away, but I've noticed that rents accommodate that it takes 18 to 24 months because you need a bunch of leases to reset in the market properties to go vacant, go look for something new. 

That begins to show up.  

We did it without Chase! Chase had more important things to do than talk to you listeners today. 

How does that make you feel? Click on Chase's profile and send him whatever hate mail you've got. We don't blame you.

Submit A Question To Be Covered On The Show!

Let us know what topic(s) you want covered in a future episode.

*Submitting this form opts you in to receive news and updates from our team.