Lumber Prices Can Impact Your Construction Business’s Insurance
The price of lumber has increased drastically. According to the National Association of Home Builders (NAHB) lumber prices have increased by over 100% in 2020. While the core cause of the lumber price increase is Covid-19, there are multiple factors that led to this present situation. The fluctuations in the housing market and the delay of construction work during the pandemic shutdown led to a surge of construction work, while the loggers and lumbermills were also shut down.
What Caused The Increase In Lumber Prices?
The cause of the increased lumber prices is essentially the fluctuations and waves in the market all meeting at the same point. The shutdown led to a buildup like a dam in a river. Suddenly that dam was released and the market reacted as water rushed and created waves in the market. The increased need for construction, increased sales in the housing market, as well as delayed construction work led to an increased need for lumber. The decreased production of lumber led to the value of lumber skyrocketing. This then results in the value of homes increasing. These fluctuations will shift back and forth like waves in water until the market settles.
How do these changes in the price of lumber affect your construction or contracting business? More importantly, how does the change in lumber prices affect your business’s insurance?
Lumber Prices Impact On Your Construction Insurance
Insurance is typically overlooked when the market goes through such rapid changes. You are preoccupied with correct spending and budgeting around your construction materials. Don’t overlook having the correct protection on your lumber materials.
Due to the increased value of lumber, you should communicate with your insurance company to make sure your construction insurance coverage is correct. Why wouldn’t your insurance coverage be correct due to increased lumber costs? If you have builders risk insurance coverage for your job site, you are purchasing insurance to protect building materials, the work being done, and certain specifics for your construction or contractor insurance policy. The value of your job and job site has increased due to the value of lumber increasing, and therefore the amount of insurance you have will not cover the claim. This works like a domino effect with your insurance. The solution is to communicate with your insurance agency.
Future Projections For The Cost Of Lumber
The price of lumber has been increasing consistently from 2016 to 2018. While we saw better prices for lumber in 2019, it isn’t likely we will return to that low of an average price of lumber. This is because the market as a whole has been changed with the influx of money that is added from stimulus checks. If the housing settles or crashes, the cost of lumber will drop. If the housing market continues to hold steady, we can expect the cost of lumber to remain high than average.
Just this month we saw a drop in the cost of lumber that looks similar to the drop we saw last September after the first lumber price surge. We may see the price of lumber drop and become more steady in 2021 as the market catches up with the demand for lumber. As the demand is met, lumber companies will start to compete against each other, forcing the price down. In my personal opinion, it is highly likely we will see another increase in lumber costs in May or June as construction increases. It will not return to the high prices we saw twice in 2020, but it will rise again.
See if we were right and check what the lumber market looks like today.
What Should You Be Doing As A Contractor
First, you should consider buying a large amount of lumber after this most recent drop in the price of lumber. This way you will be prepared for the increase that will come in the late spring. You should also communicate with your insurance agent about the price of lumber and making sure your material is protected.
Contact Strickler Insurance For Contractor Or Construction Insurance
Strickler insurance is located in Lebanon Pennsylvania and we serve construction businesses in Pennsylvania as well as surrounding states. Contact us for a free insurance quote on your business insurance. Strickler Insurance provides insurance in PA, NJ, MD, NY, DE & VA.