As the pandemic crushed the U.S. economy last spring, sawmills shut down lumber production to brace for a housing slump. The slump never arrived and now there isn't enough lumber to feed the red-hot housing market.
The shortage is delaying construction of badly needed new homes, complicating renovations of existing ones and causing sticker shock for buyers in what was already a scorching market.
Random-length lumber futures hit a record high of $1,615 on Tuesday, a staggering sevenfold gain from the low in early April 2020. That's a big deal because lumber is the most substantial supply that home builders buy.
"I've never seen anything quite like this," said Brant Chesson, the president and CEO of Homes By Dickerson, a Raleigh, North Carolina-based home builder.
Chesson said his company would love to build more homes to meet surging demand but currently it can't find the materials, or labor, to do so.
"It's absolutely contributing to a shortage of housing," he said.
'This can only last for so long'
And because the housing market is on fire, the lumber shortage is costing many prospective home buyers even more money.
Surging lumber prices alone have pushed the price of an average new single-family home $35,872 higher, according to an analysis by the National Association of Home Builders.
"While lumber prices have gone up, we have been able to pass it on to the consumer with higher prices for homes," Jeffrey Mezger, the CEO of KB Home, told CNN Business. "And there is still far more demand than there is supply."
But builders can't jack up prices forever.
"This can only last for so long before affordability becomes pinched and demand pauses," John Lovallo, lead home builders analyst at Bank of America, said in an email.
The median sale price of existing homes surged by a record 17.2% in March to $329,100 — the highest since the National Association of Realtors began tracking prices in 1999.
Lumber is so hot, it's being stolen
Independent builders, which lack the scale advantages of large construction companies like KB Home, are already feeling the pain.
Tom McCarthy can't finish building a home in Bergen County, New Jersey, because of the lumber shortage.
"There are pieces of wood that we can't find," said McCarthy, a real estate broker with the Chen Agency who also builds homes with his father on the side.
McCarthy estimates the cost of lumber for the home will hit $70,000, nearly double the cost of building the exact same home in a nearby town just eight months ago.
Some renters are also paying the price. The NAHB estimates that the lumber price spike has added nearly $12,000 to the market value of an average newly built multifamily home — translating to households paying an extra $119 per month to rent a new apartment.
The shortage — and price boom — is so extreme that builders report having lumber and other raw materials stolen from their construction sites.
"Theft has been huge in our market. We have tens if not hundreds of thousands of dollars stolen during the year," said Chesson, the North Carolina builder.
Saw mills can't keep up with demand
Today's shortage has roots in the previous housing boom. New home construction crashed after the housing bubble popped in the mid-2000s. That made sense because the market was badly oversupplied. But the downturn also drove countless sawmills out of business, leaving the industry unprepared for today's surge in demand.
And then COVID-19 happened. Sawmills eased output last spring in anticipation of another bust and as they grappled with heath restrictions.
"There was a great fear among sawmills to prepare for a downturn. When home buying surged, they could not open up capacity quickly enough," said Lawrence Yun, chief economist of the National Association of Realtors.
At the same time, demand for lumber is also being driven by a surge of renovations and expansions of existing homes.
But contractors are having trouble finding and paying for lumber, creating another headache for consumers.
"It's a cost that our members can no longer shoulder the burden on," said David Pekel, CEO of the National Association of the Remodeling Industry. "They have to pass the cost on to the homeowner."
Industry calls on Biden to act
The lumber shortage is just the latest example of how the rapid economic recovery from the pandemic is pushing supply chains to the limit. Manufacturers are desperate for workers. Smartphone, auto and appliance production is being sidelined by a shortage of computer chips. And the lack of tanker truck drivers has raised the specter of gas stations running on empty this summer.
In the case of lumber, the shortage is being amplified by tariffs.
In one of the first shots fired during the Trump trade wars, the previous administration hit Canada in April 2017 with tariffs of up to 24% on lumber. Late last year, the Trump administration slashed those tariffs to 9%.
The home building industry is now urging President Joe Biden to take further action. In a statement to CNN Business, NAHB Chairman Chuck Fowke called on the Biden administration to "temporarily remove" the 9% tariff on Canadian lumber "to help ease price volatility."
Fowke also urged the White House to "bring together interested stakeholders to hold a summit on lumber and building material supply chain issues to identify the causes and solutions for high prices and supply constraints."
The White House did not respond to a request for comment.
'Sharp fall' in lumber prices ahead?
The good news is that industry executives expect lumber production to catch up with demand -- eventually.
Samuel Burman, an assistant commodities economist, predicted in a recent note to clients that there will be a "sharp fall" in lumber prices over the next 18 months.
"The mills are coming back online. I think we're past the worst of it in terms of supply availability," said Mezger, the KB Home CEO.
Let's hope so, because the market desperately needs more supply.
"We have a housing shortage in America. The way to relieve that shortage is to build more homes," said NAR's Yun. "The housing market has created haves and have-nots. Home builders are smiling big, but first-time buyers are very demoralized."