Prices paid for goods used in residential construction ex-energy rose 0.7% in December (not seasonally adjusted) and ended the year 5.4% higher than they stood in December 2019, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics.

Homebuilding

Led by lumber, building materials prices increased by 5.4% in 2020

Led by lumber, building materials prices increased by 5.4% in 2020

Image: ronyzmbow, Depositphotos

Prices paid for goods used in residential construction ex-energy rose 0.7% in December (not seasonally adjusted) and ended the year 5.4% higher than they stood in December 2019, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. Building materials (i.e., inputs to residential construction less food and energy) prices declined just twice over the course of 2020.

The index for inputs to residential construction, including food and energy, also increased over the month (+1.6%) as energy prices climbed 5.5%, the National Association of Home Builders (NAHB) reported.

Prices paid for softwood lumber (seasonally adjusted) rose by double digits (+12.5%) following a 23.9% decline over the prior two months. The softwood lumber PPI remains nearly 15% lower than the record high set in September, but data from Random Lengths suggests that the index will increase more in January as rising prices in late-December and the first half of January are captured by the BLS survey.

Not only has softwood lumber reached historic highs in terms of prices this year, but those prices have been extremely volatile. The two most volatile years for the softwood lumber PPI since 2001 have been 2020 (0.45) and 2018 (0.29). In contrast, the 20-year annualized volatility has been roughly 0.14. This year’s price index has been roughly four times as volatile as it was during the recessionary years of 2008 and 2009.

In addition to nominal price movements and tariffs on Canadian lumber, cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar. Not only has the USD weakened 12.7% since March, it has fallen 3.5% since lumber prices began rising again in November.