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.
Visualized: The Power of a Sustainable Investment Dollar
Do sustainable investments make a difference? From carbon emissions to board diversity, we break down their impact across three industries.
Visualizing the Power of a Sustainable Investment Dollar
Sustainable investments are booming.
Between January and November 2020 alone, investments in sustainable ETF and mutual funds grew 96%. The UN Principles of Responsible Investment now has over 3,000 signatories representing over $100 trillion in assets. The U.S. Commodity Futures Trading Commission established a Climate Risk Unit to analyze climate risk across derivative markets, and as of March 2021, new sustainability disclosures have come into effect in Europe.
But how do we know if sustainable investments have made a difference?
To answer this question, the above infographic from MSCI examines the effect of a sustainable investment dollar by looking at real-world examples.
A Sustainable vs. Unsustainable Dollar
To start, investing legend Benjamin Graham has compared the stock market to a “voting machine.” Just as consumers vote with their purchasing decisions, investors vote with their investment dollars. Especially in the short term, as more dollars flow to sustainable companies, this builds their exposure and access to capital.
In the long term, meanwhile, the market can be compared to a weighing machine. The market recognizes companies with profitable business models that improve their intrinsic value over time. Ultimately, this allows sustainable companies to expand and continue operating.
Given the rising momentum in both green assets and climate targets, here is how investment dollars have influenced and driven change across three industries.
1. Clean Energy vs. Fossil Fuel
Over the last several years, the energy sector has been associated with many of the problems causing climate change. For this reason, many investors are seeking out greener energy alternatives. But how does moving investment dollars from an ESG laggard to an ESG leader support the environment and society?
First, here is a brief explainer of ESG laggards and leaders:
- ESG laggards: companies with the weakest environmental, social, and governance (ESG) performance in their sector.
- ESG leaders: companies with the strongest environmental, social, and governance (ESG) performance in their sector.
|Industry laggard: U.S. oil & gas company||Industry leader: U.S. utilities company|
|Scale of carbon-intensive business lines equal to 73% of its operation||47% lower CO2 emissions than the industry average|
|This is the equivalent of adding 26 million cars on the road annually||This is the equivalent of removing 9.9 million cars off the road annually|
|1 of 20 oil and gas companies are responsible for contributing to one third of GHG emissions since 1965||Uses 3X as many renewable sources than industry average|
|3X fewer jobs are created vs. energy efficient sector, resulting in lower productivity||This is roughly the same as saving over 9 million pounds of coal burned|
|MSCI ESG Rating: CCC||MSCI ESG Rating: AAA|
Source: MSCI ESG Research
Based on the above example, investors have the ability to finance powerful green initiatives that reduce emissions by almost half, relative to their peers.
2. Safe vs. Unsafe Working Conditions
Weak safety protocols are a key sustainability issue for the industrial sector. Here’s how two companies compare:
|Industry laggard: South African mining company||Industry leader: U.S. mining company|
|11 fatalities in 2019||Zero fatalities in 2019|
|Faced lawsuits from miners surrounding lung diseases contracted from dust exposure in gold mines|
Settlement cost: $350 million
|Board-level oversight monitors health and safety performance|
|Lags behind peers in high incident rates||Leads peers in low incident rates|
|Lags behind peers in setting incident reduction targets||Leads industry in lost time incident rate & total recordable injury rate|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
Despite the risks involved in the sector, investors can choose to support companies that take greater precautions to protect their workers.
3. Building Trust vs. Losing Trust
Over the last several years, the financial sector has faced increased scrutiny over fraudulent activities. Moving investment dollars from an ESG laggard to ESG leader may make a difference:
|Industry laggard: U.S. bank||Industry leader: Dutch bank|
|$3 billion settlement in creating fictitious accounts to meet aggressive sales targets||Sustainable finance portfolio valued at over $20 billion|
|Drop in top-tier bank ratings||13% annual increase in climate finance|
|Board effectiveness questioned||Includes over 60 green loans, mobilizing environmentally friendly projects|
|Resignation of board members||Over 55% of board is female|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
From board diversity to green loans, a sustainable investment dollar supports companies that are actively advancing society and the environment.
Sustainable Investment: The Time to Act
Recently, investor dollars and shareholder activism have been closely linked.
Between 2018 and 2020, large institutional investors filed 217 shareholder proposals on climate change alone, putting increased pressure on companies. Meanwhile, 270 proposals were filed on corporate political activity and 228 on fair labor and equal employment opportunity over the same timeframe. Across all ESG proposals, $2 trillion in assets were pushing for more equitable corporate action.
Through the power of a dollar, investors can send a clear signal to companies: the time for sustainable investing is now.
China’s Economy: 40 Years of Soaring Exports
China’s economy today is completely different than 40 years ago; in 2021 the country makes up the highest share of exports globally.
Animated Chart: 40 Years of Soaring Exports in China
China has the second highest GDP in the world, and it exports 15% of all the world’s goods. But how did this come to be?
A mere 40 years ago, China’s economy was in an entirely different situation, making up less than 1% of global exports and still in the infancy stages of building its economy. The above animated chart from the UNCTAD showcases China’s rise to global trade dominance over time.
Timeline: The Rise to Power
The China of the mid-20th century looks remarkably different when compared to the modern-day nation. Prior to the 1980s, China was going through a period of social upheaval, poverty, and dictatorship under Mao Zedong.
Beginning in the late 1970s, China’s share of global exports stood at less than 1%. The country had few trade hubs and little industry. In 1979, for example, Shenzhen was a city of just around 30,000 inhabitants.
In fact, China (excluding Taiwan* and Hong Kong) did not even show up in the top 10 global exporters until 1997 when it hit a 3.3% share of global exports.
|Year||Share of Global Exports||Rank|
*Editor’s note: The above data comes from the UN, which lists Taiwan as a separate region of China for political reasons.
In the 1980s, several cities and regions, like the Pearl River Delta, were designated as Special Economic Zones. These SEZs had tax incentives that worked to attract foreign investment.
Additionally, in 1989, the Coastal Development Strategy was implemented to use strategic regions along the country’s coast as catalysts for economic development.
The 1990s and Onwards
By the 1990s, the world saw the rise of global value chains and transnational production lines, with China offering a cheap manufacturing hub due to low labor costs.
Rounding out the ‘90s, the Western Development Strategy was implemented in 1999, dubbed the “Open Up the West” program. This program worked to build up infrastructure and education to retain talent in China’s economy, with the goal of attracting further foreign investment.
Finally, China officially joined the World Trade Organization in 2001 which allowed the country to progress full steam ahead.
Made in China
Today China is a trade giant and manufacturing behemoth. Only the U.S. and Germany come close to its share of global exports, sitting at 8.1% and 7.8% respectively.
|Rank||Country||Share of Global Exports (2020)|
|#6||🇭🇰 Hong Kong SAR||3.1%|
|#7||🇰🇷 South Korea||2.9%|
China’s manufacturing industry has become dominant in producing just about anything from commonplace household items to integral pieces in automotive manufacturing. Some staples of Chinese manufacturing are:
- Precision instruments
- Industrial machinery for computers and smartphones
COVID-19 made China’s integral role in the global economy even more visceral, as major delays in the supply chain occurred when the virus hit the country.
An Economic Superpower
In 2021, China’s trade recovery from the crisis has bested most other countries—in Q1 2021, its exports grew by almost 50% compared to the previous year’s quarter, to around $710 billion.
And the country is not slowing down any time soon. Further plans for economic development are well under way, like Made in China 2025, with the goal of becoming a dominant player in global high-tech manufacturing. Additionally, the famous One Belt, One Road initiative has been funding infrastructure projects globally over the past decade, and the country is also a founding member of the RCEP—which is soon to be the world’s biggest trading bloc.
However, China still faces a series of challenges, such as:
- Population decline
- The onset of labor saving technology
- Trade wars with U.S. and sanctions from other trade partners, like Europe
- The emergence of ASEAN trade powers, like Vietnam
A declining population has many implications like a shrinking workforce and domestic market. Additionally, many companies are setting up shop in less costly manufacturing hubs like Vietnam.
Furthermore, inexpensive innovations in labor-saving technologies, such as robotics and automation, have already begun to undermine the cheap manual labor that has made China the world’s manufacturer.
All of these elements and more could potentially spell a slowing of growth in China’s export dominance. However, while the future for China may not be certain, currently, global trade and production could not function without it.
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