Expect Material Price Increases to Continue in Early 2021

Last week we authored a blog post looking back on pricing in 2020 and why the reduced pricing many of us were anticipating to come just never did. The question lingering for everyone in the industry now is:  What’s going to happen in 2021 for pricing? Many developments were put on hold last year in hopes of better pricing this year, but will that happen? To forecast this, we’re looking at the state of 3 current events: The COVID-19 Vaccine, Material Supply and Demand, and Government Intervention.

COVID-19 Vaccine

While we cannot be a source of information on the status and timing of individuals being vaccinated, we know that at some point this year, all those who want to receive immunity from the vaccine will have that opportunity. Market information sources like NIC and Senior Care Investor all agree the outlook for senior housing is positive, and the decreases in censuses last year will be reversed once consumers are more confident in their safety. Additionally, we know other industries that have seen even harder hits like hospitality and retail will see recovery in some capacity once state-issued restrictions are lifted, and vaccines have been given. All of this will be fueled by the remarkable increase in consumer savings that occurred in 2020, a record 32.2% monthly average high (Source). The end result – A freshly released consumer base that is ready to resume activities and services they stopped last year, with the financial ability to do so. For development, that means an inevitable demand to return to building in these areas over the course of 2021. 

Material Supply and Demand

We now know for certain of the material supply market: Production drops due to mandated shutdowns, unemployed staff, and virus outbreaks have created a deficit in available materials that we will not recover from any time soon. The hopes of better lumber pricing and availability that came late last fall have been quickly dashed, and lumber prices are now higher than even their peak last September (Source: RandomLengths.com). Hopes and predictions of pricing coming off in Q1 of 2021 have been dashed by futures holding strong. From the sources we have who speak directly with mills, there isn’t enough supply to meet the demand – A demand which we know will grow over 2021 with the distribution of the vaccine and single-family home construction continuing to rise. Lumber is not alone as a culprit here, with the same news being shared with us for materials like rebar, structural steel, drywall, and vinyl products as recently as the last few weeks. Another major indicator we’ve watched grow since last spring is PVC resins, which also hit another all-time high fueled by excess demand, mainly from the housing market (Source). Unfortunately, there will not be enough material to go around in 2021, nor the productive capacity to overcome the shortage with any speed or certainty.

 Government Intervention

Two upcoming major events from the U.S Government will have an early impact on the course of pricing over 2021. First, the second round of Coronavirus assistance money will provide benefits to a number of businesses and individuals in need, particularly smaller businesses and underserved communities, which is in many ways a good thing (Source). Unfortunately, as we know from the first round of aid, we will see banks focusing on these funds versus commercial lending, which will hurt development and businesses. Additionally, many trade companies have had their ability to obtain manpower by those favoring instead to stay on unemployment. The lack of manpower will affect productivity and therefore add time and cost to projects. Secondly, the new administration will likely enforce additional measures to prevent the spread of COVID-19 on construction sites, as President-Elect Biden has already asked of OSHA (Source). While these are incredibly important measures to take to control the spread of the virus, they too will likely impact worker productivity and, therefore, pricing.

Bottom line, as much as we are hoping to emerge with strong pricing in the new year to help our clients and see growth again in the industry, there are so many reasons to expect that pricing will not improve in the early part of this year – In fact, it will likely continue to get worse. The upside is that the strong developers with access to capital will be introducing products that will be highly demanded of the newly-vaccinated public. That anticipated demand has to be the driver to overlook what seem like exceptional prices and understand that waiting is no longer a good strategy.

Bruce Douglas

Director of Preconstruction Services 

The Douglas Company


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