Visualizing the Recent Explosion in Lumber Prices
Lumber is an important commodity used in construction, and refers to wood that has been processed into beams or planks.
Fluctuations in its price, which is typically quoted in USD/1,000 board feet (bd ft), can significantly affect the housing industry and in turn, influence the broader U.S. economy.
To understand the impact that lumber prices can have, we’ve visualized the number of homes that can be built with $50,000 worth of lumber, one year apart.
A Story of Supply and Demand
Before discussing the infographic above, it’s important to understand the market’s current environment.
In just one year, the price of lumber has increased 377%—reaching a record high of $1,635 per 1,000 bd ft. For context, lumber has historically fluctuated between $200 to $400.
To understand what’s driving lumber prices to new heights, let’s look at two economic elements: supply and demand.
U.S. lumber supplies came under pressure in April 2017, when the Trump administration raised tariffs on Canadian lumber. Since then, lumber imports have fallen and prices have experienced significant volatility.
After a brief stint above $600 in April 2018, lumber quickly tumbled down to sub $250 levels, causing a number of sawmills to shut down. The resulting decreases in production capacity (supply) were estimated to be around 3 billion board feet.
Once COVID-19 emerged, labor shortages cut production even further, making the lumber market incredibly sensitive to demand shocks. The U.S. government has since reduced its tariffs on Canadian lumber, but these measures appear to be an example of too little, too late.
Against expectations, COVID-19 has led to a significant boom in housing markets, greatly increasing the need for lumber.
Lockdowns in early 2020 delayed many home purchases until later in the year, while increased savings rates during the pandemic meant Americans had more cash on hand. The demand for homes was further amplified by record-low mortgage rates across the country.
Existing homeowners needed lumber too, as many Americans suddenly found themselves requiring upgrades and renovations to accommodate their new stay-at-home lifestyles.
How Many Homes Can You Build With $50K of Lumber?
To see how burgeoning lumber prices are impacting the U.S. housing market, we’ve calculated the number of single family homes that could be built with $50,000 worth of lumber. First, we established the following parameters:
- Lumber requirements: 6.3 board feet (bd ft) per square foot (sq ft)
- Median single family house size: 2,301 sq ft
- Total lumber required per single family house: 14,496 bd ft
Based on these parameters, here’s how many single family homes can be built with $50,000 worth of lumber:
|Date*||Lumber Price||Total Lumber Purchased||Total Homes Built|
|2021-05-05||$1,635 per 1,000 bd ft||30,581 bd ft||2.11|
|2020-05-04||$343 per 1,000 bd ft||145,773 bd ft||10.05|
|2015-05-01||$234 per 1,000 bd ft||213,675 bd ft||14.74|
|2010-05-01||$270 per 1,000 bd ft||185,185 bd ft||12.77|
*Exact matching dates were not available for past years.
As lumber prices continue to set record highs, the National Association of Home Builders (NAHB) has reported that the cost to build a single family home has increased by $36,000. Most of this cost can be passed down to the consumer, but extremely tight supplies mean homebuilders are unable to start more projects.
The Clock is Ticking
Despite their best efforts to increase output, it’s likely that sawmills across the U.S. will continue playing catch-up in 2021.
“There was a great fear among sawmills to prepare for a downturn. When home buying surged, they could not open up capacity quickly enough.”
– Lawrence Yun, National Association of Realtors
Analysts are now warning that lumber prices could reach a flashpoint, where affordability becomes so limited that demand suddenly falls off. This has led the NAHB to ask the Biden administration for a temporary pause on Canadian lumber tariffs, which currently sit at 9%.
U.S. tariffs on Canadian lumber were first introduced in 1982, and represent one of the longest lasting trade wars between the two nations. The U.S. is currently appealing a World Trade Organization (WTO) ruling that states its 2017 tariff hike was a breach of global trading rules.
The World’s Biggest Real Estate Bubbles in 2021
According to UBS, there are nine real estate markets that are in bubble territory with prices rising to unsustainable levels.
Ranked: The World’s Biggest Real Estate Bubbles in 2021
Identifying real estate bubbles is a tricky business. After all, even though many of us “know a bubble when we see it”, we don’t have tangible proof of a bubble until it actually bursts.
And by then, it’s too late.
The map above, based on data from the Real Estate Bubble Index by UBS, serves as an early warning system, evaluating 25 global cities and scoring them based on their bubble risk.
Reading the Signs
Bubbles are hard to distinguish in real-time as investors must judge whether a market’s pricing accurately reflects what will happen in the future. Even so, there are some signs to watch out for.
As one example, a decoupling of prices from local incomes and rents is a common red flag. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.
With this in mind, which global markets are exhibiting the most bubble risk?
The Geography of Real Estate Bubbles
Europe is home to a number of cities that have extreme bubble risk, with Frankfurt topping the list this year. Germany’s financial hub has seen real home prices rise by 10% per year on average since 2016—the highest rate of all cities evaluated.
Two Canadian cities also find themselves in bubble territory: Toronto and Vancouver. In the former, nearly 30% of purchases in 2021 went to buyers with multiple properties, showing that real estate investment is alive and well. Despite efforts to cool down these hot urban markets, Canadian markets have rebounded and continued their march upward. In fact, over the past three decades, residential home prices in Canada grew at the fastest rates in the G7.
Despite civil unrest and unease over new policies, Hong Kong still has the second highest score in this index. Meanwhile, Dubai is listed as “undervalued” and is the only city in the index with a negative score. Residential prices have trended down for the past six years and are now down nearly 40% from 2014 levels.
Note: The Real Estate Bubble Index does not currently include cities in Mainland China.
Trending Ever Upward
Overheated markets are nothing new, though the COVID-19 pandemic has changed the dynamic of real estate markets.
For years, house price appreciation in city centers was all but guaranteed as construction boomed and people were eager to live an urban lifestyle. Remote work options and office downsizing is changing the value equation for many, and as a result, housing prices in non-urban areas increased faster than in cities for the first time since the 1990s.
Even so, these changing priorities haven’t deflated the real estate market in the world’s global cities. Below are growth rates for 2021 so far, and how that compares to the last five years.
Overall, prices have been trending upward almost everywhere. All but four of the cities above—Milan, Paris, New York, and San Francisco—have had positive growth year-on-year.
Even as real estate bubbles continue to grow, there is an element of uncertainty. Debt-to-income ratios continue to rise, and lending standards, which were relaxed during the pandemic, are tightening once again. Add in the societal shifts occurring right now, and predicting the future of these markets becomes more difficult.
In the short term, we may see what UBS calls “the era of urban outperformance” come to an end.
Mapped: Distribution of Global GDP by Region
Where does the world’s economic activity take place? This cartogram shows the $94 trillion global economy divided into 1,000 hexagons.
Mapped: The Distribution of Global GDP by Region
Gross domestic product (GDP) measures the value of goods and services that an economy produces in a given year, but in a global context, it is typically shown using country-level data.
As a result, we don’t often get to see the nuances of the global economy, such as how much specific regions and metro areas contribute to global GDP.
In these cartograms, global GDP has been normalized to a base number of 1,000 in order to show a more regional breakdown of economic activity. Created by Reddit user /BerryBlue_Blueberry, the two maps show the distribution in different ways: by nominal GDP and by GDP adjusted for purchasing power parity (PPP).
Before diving in, let us give you some context on how these maps were designed. Each hexagon on the two maps represents 0.1% of the world’s overall GDP.
The number below each region, country or metropolitan area represents the number of hexagons covered by that entity. So in the nominal GDP map, the state of New York represents 20 hexagons (i.e. 2.0% of global GDP), while Munich’s metro area is 3 hexagons (0.3%).
Countries are further broken down based on size. Countries that make up more than 0.95% of global GDP are broken down into subdivisions, while countries that are smaller than 0.1% of GDP are grouped together. Metro areas that account for over 0.25% of global GDP are featured.
Finally, it should be noted that to account for some outdated subdivision participation data, the map creator calculated 2021 estimates for this using the formula: national GDP (2021) x % of subdivision participation (2017-2020).
Nominal vs. PPP
The above map is using nominal data, while the below map accounts for differences in purchasing power (PPP).
Adjusting for PPP takes into account the relative value of currencies and purchasing power in countries around the world. For example, $100 (or its exchange equivalent in Indian rupees) is generally going to be able to buy more in India than it is in the United States.
This is because goods and services are cheaper in India, meaning you can actually purchase more there for the same amount of money.
Anomalies in Global GDP Distribution
Breaking down global GDP distribution into cartograms highlights some interesting anomalies worth considering:
- North America, Europe, and East Asia, with a combined GDP of nearly $75 trillion, make up 80% of the world’s GDP in nominal terms.
- The U.S. State of California accounts for 3.7% of the world’s GDP by itself, which ranks higher than the United Kingdom’s total contribution of 3.3%.
- Canada as a country accounts for 2% of the world’s GDP, which is comparable to the GDP contribution of the Greater Tokyo Area at 2.2%.
- With a GDP of $3 trillion, India’s contribution overshadows the GDP of the whole African continent ($2.6 trillion).
- This visualization highlights the economic might of cities better than a conventional map. One standout example of this is in Ontario, Canada. The Greater Toronto Area completely eclipses the economy of the rest of the province.
Inequality of GDP Distribution
The fact that certain countries generate most of the world’s economic output is reflected in the above cartograms, which resize countries or regions accordingly.
Compared to wealthier nations, emerging economies still account for just a tiny sliver of the pie.
India, for example, accounts for 3.2% of global GDP in nominal terms, even though it contains 17.8% of the world’s population.
That’s why on the nominal map, India is about the same size as France, the United Kingdom, or Japan’s two largest metro areas (Tokyo and Osaka-Kobe)—but of course, these wealthier places have a far higher GDP per capita.
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