Where the Wood At?

We have talked about increases before (for example bitcoin, the cost of gasoline, and even the cost of houses) in previous blog posts, but we felt it was time to revisit this topic now since the prices have jumped yet again. We previously covered that the global demand for lumber has increased since the world went into lock down. We also previously reported that lumber prices have risen by more than 130% since before the COVID-19 pandemic, which makes for an estimated $24,000 in the cost of a newly constructed single-family home and almost $13,000 for a multifamily home. In fact, when looking over the course of a year, lumber has increased by 375% between April 2020 and April 2021 according to Forbes. That means investors have sunk almost four times as much money into the same exact amount of wood compared to a year ago, and the bad news is that the spike shows no signs of stopping. Although the housing sector continues to be a leader in the nation's economic recovery, these sharp price increases threaten housing affordability for all Americans. 

But how exactly did we get here? There are a few reasons.  As wealth increases around the world, lumber demand increases with it, which is more or less expected. Second, think about the things you have been seeing in your social media feeds. Chances are you have at least one friend who decided to spend the last yet at home trying to tackle new (or long-promised) DIY projects for your backyard, like a brand new wooden deck, for instance? Naturally, the pandemic increased consumer demand for lumber for such projects in addition to brick and plexiglass, to name a few. The same is true for restaurants, which also had to build an unprecedented amount of outdoor seating spaces to comply with COVID-19 distance regulations and still operate at some level of capacity. And guess what - groceries are catching up to this trend.

This may not come as a surprise, but the price of groceries is up 4% nationally from the same time last year and it is worse in cities because of the pandemic. For example, in Atlanta food costs are up nearly 6.5% with meat prices even higher. At the beginning of the pandemic people were panic buying to the point that stores had trouble keeping product stocked and shippers were having difficulty delivering due to the increased demand. So of course, the rules of supply and demand made the cost of groceries go up. The odd thing is that despite the pause in panic buying the price of groceries is not falling nearly as quickly as it shot up. Why is that? Well consider the following: when the pandemic first struck paper, toilet paper was like gold despite the lack of diarrhea related COVID-19 symptoms. The optics of trying to take a price increase during that time just weren't going to be good as people would notice changes in prices - especially since some of the toilet paper hoarders were selling their surplus at staggeringly high prices. Thus, despite the spike in demand, companies were not in a position to balance out the price-and-cost equation, at least without looking like greedy jerks. Now that the economy is beginning to stabilize and people have stopped panic buying, companies are starting to make different economic calculations and re-balancing pricing so that it better fits their profit expectations. All of this is why grocery prices are up.