How Soaring Lumber Prices Will Increase the Cost of Your Investment Property

Even if you aren’t a real estate investor, you are probably aware that the price of lumber has gone up exponentially since the beginning of the pandemic. And if you know this, you might be able to guess how much this price increase has affected the overall cost of not just new construction builds, but renovations and fix & flips as well. This blog will outline the price increases that have been seen so far, the market outlook for the future, and how this added cost will impact your investments.

Why The Price Of Lumber Is So High

Supply chain shortages have unfortunately become one main theme of the pandemic. Lumber is not the only commodity to have been hit hard, but it’s had an outsized effect on the real estate market. 

While there are many reasons for this, a leading factor is that demand has increased during a time that many mills are shut down due to COVID restrictions. That slowed supply hasn’t been able to keep up with the needs of consumers, so prices have gone up drastically.

The Price Of Lumber Today

To illustrate how dramatically the lumber market has spiked, take a look at 2019’s average price per 1000 board feet (MBF): $375 USD.

The price of lumber reached its peak in May of 2021, reaching $1680/MBF. The lowest point since then was in August of 2021.

On December 1st of 2021, lumber closed out at $870/MBF, and has continued to increase in price by about $100 since then. The price of lumber is forecast to keep increasing but without any drastic spikes. Only time will tell.

The Increased Cost of Construction

As of April 2021, the National Association of Home Builders (NAHB) has estimated that new home builds cost an additional average of $36,000–costing the buyer of single-family homes an additional average of $24,000.

For home renovations and fix and flips, the cost for lumber is comparatively much lower but not at all insignificant. This total cost of course depends on many factors, including the condition of the property and what improvements an investor plans to make in order to ensure a property is profitable. 

The Bottom Line

The good news is, the cost of lumber has come down a lot since reaching its jaw-dropping peak in 2021. To the dismay of real estate investors and DIY-ers alike, the price increase is likely here to stay for 2022 and beyond. It is unlikely to go back to pre-pandemic levels any time soon.

Although a majority of this price increase is ultimately passed onto the consumer, real estate investors need to adjust to this change by securing more capital to cover the increased cost of completing these investment projects.

Our Funding Options Can Help Your Investments Stay Profitable

To secure optimal funding that will cover the increased costs of securing lumber for your next project in Texas or Tennessee, contact a representative at Loan Ranger Capital. For expert tips on bringing down the costs of things you can control, take a look at our resource center

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