Softwood Lumber Costs Up Nearly 30% Over Three Months, Push Building Materials Prices Higher in July


Prices paid for goods used in residential construction continued their upward trend in July, increasing 1.8% (not seasonally adjusted) according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. It is the third consecutive monthly increase since the index declined three months straight by a total 5.4%.

The index has decreased 1.3% year-to-date (YTD), a larger decline than the prior record for a July YTD decrease (-0.9% in 2000). Prices paid for goods used in residential construction have only fallen five times between January and June since 2000.

The Bureau of Labor Statistics includes energy costs in the calculation of the index of goods inputs to residential construction.  As of the December 2019 detailed weighting tables, energy accounts for 13.9% of the cost of inputs used in residential construction.  The previous weight was 10.7%.  One can see that diesel fuel, for instance, appears to be influential in the overall monthly price changes given by the index.

The index of goods used in residential construction, less the energy components, increased 0.4% in July and has declined four times over the past 12 months compared to six monthly decreases for the index including energy.  The average monthly change in the index less energy has been roughly 0.25% greater than that including energy (+0.10 v -0.16%).  Large monthly declines in diesel and unleaded gasoline prices in 2020 have been the primary driver of the difference.

The increase in prices paid for building materials was led by a 11.0% increase in softwood lumber prices. Since decreasing 10.8% in April, softwood lumber prices have risen 29.3% and are now roughly equal to prices paid during the peak of the early- to mid-2018 runup. Although prices paid for softwood lumber are near 2018 records in level terms, the YTD percentage increase in 2020 (+22.0) is far greater than it was in 2018 (+13.8%).

Prices paid for gypsum products fell 0.4% in July after increasing 0.6% in June (seasonally adjusted). The price index for gypsum products has risen 0.5% over the past 12 months and is 8.1% lower than the most recent peak reached in March 2018.

Gypsum product prices have declined 2.8% YTD. Prices fell by 4.0% over the same period in 2019 and are 6.1% higher than they were to start 2017.

Nationally, prices paid for ready-mix concrete (RMC) advanced 0.3% in July (seasonally adjusted) after advancing 0.1% in June.

Prices rose in the Northeast, Midwest, and South regions by 2.7%, 2.7%, and 1.1%, respectively, while prices paid in the West fell 5.6% month-over-month.

Other changes in indexes relevant to home building and infrastructure are shown below.


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3 replies

  1. I wonder how change in Lumber Prices affect signed contracts.Do Contractors include a line item in their project contract that describes such price fluctuations? Is this something that most builders/ contractors do?
    2 Weeks ago Home Depot 4×8 7/16 OSB cost was roughly $13 and today it is $19.75

  2. Is an almost $20,000 increase in the build price of a new home realistic?

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