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Lumber Prices Up 42% YOY as Construction Costs Continue to Rise

The construction industry has seen significant disruptions over the course of the pandemic, including a continued increase in costs of construction materials. 
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lumber prices up 42% yoy as construction costs continue to rise

The aggregate costs of construction materials in the U.S. increased 11.9% year over year at the end of the first quarter of 2021, according to the CoreLogic® 2021 Quarterly Construction Insights report, with lumber prices seeing the most dramatic rise. In March 2021, costs for lumber increased 42% year over year, with costs in some states—Iowa, Rhode Island and Washington D.C.—increasing by up to 82%.

With a steep increase in demand for lumber, coupled with supply constraints as sawmills struggle to meet demand following closure due to the coronavirus pandemic, construction costs have continued to increase. In December 2020, the average cost of U.S. commercial building materials increased by 9.6%, according to CoreLogic's last report, with lumber experiencing a 34% year-over-year cost.

As lumber production begins to catch up with demand, price increases are expected to slow down. However, any improvement could be tapered by hurricane and wildfire activity in 2021.

Materials in every state were more expensive in March 2021 than they were in March 2020. Overall construction costs grew by at least 5% in every state with the largest increases in Rhode Island (10%), Iowa (9%) and Maine (8%). The rising cost of materials is one of the factors that is leading to the year-over-year growth in the price for new homes, which has notably accelerated from 5.5% last year to 9.4% this year and for existing homes has increased from 8.9% to 11.3%.

“With respect to current building costs, insurance carriers, contractors and homeowners should be aware of the potential downstream implications of cost spikes on insuring to value (ITV)," the report said. “These fluctuations could have regional variations in impact."

Labor costs grew by at least 2% in every state with North Dakota (24%), South Dakota (15%) and Idaho (14%), seeing the largest increases. Additionally, U.S. permit authorizations in March 2021 increased 36% year over year in every state with the Midwest region seeing the largest increase at 54%.

In commercial insurance, the U.S. Chamber of Commerce stated the Commercial Construction Index (CCI), which measures the changes in the cost for housing construction, increased two points from 60 to 62, remaining well below the index of 74 from the prior year. Currently, 80% of contractors are experiencing delays on projects, and 71% of contractors are facing at least one material shortage. Contractors' top reported material shortage continues to be lumber at 22%.

The U.S. economy has seen significant disruptions over the course of the pandemic. However, since the fourth quarter of 2020, housing starts, building permits, and consumer confidence have all increased, while home sales have dropped and unemployment has continued to decline, according to the report.

Olivia Overman is IA content editor.