Recently, home insurance rates have been affected by seemingly curious lumber prices. As the price of lumber increases, so is the cost of building a house leading to higher home insurance rates. This high rate is expected to continue for the foreseeable future, as suggested on the website of a reputable home insurance company.
The prices are expected to go back to normalcy by 2023. This means that lumber will be available at prices similar to the pre-pandemic rates. However,it should be noted this increase in lumber prices has not been caused by inflation. Wood prices,just like any other commodity, tend to respond to changes in demand and supply rapidly. While wood is used in other sectors such as palette making ,construction of homes still remains the biggest consumer of lumber and hence are affected the most by the high costs of timber.
Why Are the Prices Rising?
Recent Heavy Rainstorms
The lumber prices are rising because of the storm damage that occurred in different areas, including Louisiana and Florida which damaged plenty of wood that was ready for harvest.This led to acute shortage of timber causing price to increase rapidly.
The covid19 pandemic
The pandemic has also affected the lumber industry. Most lumbers were on lockdown and as a result, production of wood was very low leading to demand outsripping supply This has translated to increased home insurance rates across the US.
The demand for wood in the US increased during the 2020 summer leading to higher prices of wood. Most people stayed at home and did not go on holidays and vacations. With plenty of time in their hands and disposable cash, they started buying construction materials from local suppliers to add some fun to their homes, such as a deck, she-sheds, playhouses, and others to expand their houses.
End of lockdown and low Interest-mortgage
Later in the 2020, lockdowns were lifted and homebuilders started doing construction. By December 2020, building a house hit its highest peak since 2006. This was mostly fueled by affordable mortgages. Interest rates had dropped due to the pandemic. But mortgage rates were still slow, and the 30-year mortgages dropped to their lowest, which was under 3%.
The low-interest rate on mortgages persuaded even apartment owners to buy a home. Many families who were planning to buy houses in a few years changed their minds between 2020 and 2021. This saw a massive increase in demand for homes. Lumber companies were unable to meet the demand because they have a few mills.
High Demand for Wood
The demand for wood has risen higher than what available mills could process. Making a single mill takes up to one or two years. Before corona hit the world, there were mills in the process of construction. But if you place an order for new milling equipment it would take two years to complete. To add salt to the injury, pine beetles smaller than a rice grain had destroyed more than 15 years’ worth of log supplies in Columbia. The wood was enough to build nine million homes for single families. The pests are still eating the wood in Pacific Northwest and Alberta forest.
The lumber industry is also facing labor challenges. This includes truck drivers who opted to stay at home due to covid19. Lack of labor is a constraint that has contributed to the increase in lumber prices.
Typically, wood prices increase during spring and go down by fall. The only relief may be when they level off. But for now, the prices are not likely to drop and the cost will keep on being passed to home buyers by constructors.
Lumber Prices and Insurance Rates
Even though wood is plentiful in North America in the southern forests, nothing will lower the price of plywood and lumber for now. This is what has translated to high insurance policies for homeowners. Every home policy has dwelling coverage, which is determined by an estimated cost to replace your home in case of a disaster. It includes construction costs in terms of materials and labor. This has made insurance rates go up. When the cost of building a home is high, insurance coverage also costs more.
According to the Canada Insurance of Bureau, homeowners worried about the cost of lumber should also check how it has impacted the home insurance policy. The prices have increased by almost 120%, which is enough to worry those who own homes about rebuilding and repair expenses.