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Lumber prices skyrocket amid pandemic due to demand

The National Association of Home Builders said the lumber price surge is adding $24,000 to the average price of a newly built home.

Lumber prices are on the rise, making new homes and home improvement projects more expensive this year.

Oxford Economics reports that random length lumber prices have more than tripled since last April. The National Association of Home Builders said the lumber price surge is adding $24,000 to the average price of a newly built home.

Even with sky high lumber prices, it's highly likely that housing construction will remain one of the stand-out performers for the economy again this year.

“We expect the pace of housing starts to moderate in 2021 as homebuilders confront constraints including high lumber prices and shortages of lots and labor. However, we think the February data overstates any actual weakness in the housing market,” Nancy Vanden Houten, lead economist for Oxford Economics, said in a research note.

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Fortune reports that the price shock comes as lumber supply falls due to COVID-19 restrictions hampering sawmills. Meanwhile low interest rates and limited home inventory is leading home builders to increase production. 

One economist told Fortune he expects a lumber correction later this year if vaccine rollout is successful.

"For some mills, this latest wave of COVID-19 from November to January restrained production at a time when mills would have liked to add overtime or shifts to meet unseasonably strong demand," Dustin Jalbert , senior economist at Fastmarkets RISI, told Fortune. "As COVID-19 cases continue to plummet, vaccination roll out over the coming weeks and we achieve some level of herd immunity, I expect mill production to ramp up and distribution delays to start dissipating. Supply should increase in the coming months."