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New-Home Market Relief: Lumber Prices Falling Fast

Prices for July-delivery lumber dropped 41% compared to May, from about $1.7K for 1,000 board feet to $1.0K. Some analysts now wonder how far prices will fall.

NEW YORK – Lumber prices are falling quickly from record highs, and that may be happening at the right time for the new-home market. Home builder sentiment sank this month to its lowest level since August 2020, with builders blaming increasing material supply challenges for their outlook, according to the National Association of Home Builders. Builders said the declining availability for softwood lumber and other building materials pushed builder sentiment down in June, even as buyer demand surges.

Lumber prices have been increasing for months, prompting builders to raise their prices and, in some cases, stop taking new orders due to the difficulty of pricing projects accurately during construction.

But wood prices are coming down – and they’re coming down fast. Futures for July delivery of lumber were $1,009.90 per thousand board feet – a 41% drop from the record of $1,711.20 reached in early May.

“The rapid decline suggests a bubble that has burst, and the question is how low lumber prices will fall,” The Wall Street Journal reports. “Even after tumbling, lumber futures remain nearly three times what is typical for this time of year. Lumber producers and traders expect that prices will remain relatively high due to the strong housing market, but that the supply bottlenecks and frenzied buying that characterized the economy’s reopening and sent prices to multiples of the old all-time highs are winding down.”

During the run-up in lumber prices, some builders began hoarding lumber to shield themselves from future gains and ensure they didn’t run out of it during construction. As a result, housing analysts predict the new-home market will see greater “shadow inventory” as businesses begin to sell their own stockpiles.

“I don’t think $1,000 lumber prices are the new normal,” Devin Stockfish, chief executive of Weyerhaeuser Co., a lumber producer, told investors last week at a conference. “But that being said, when you think about the amount of housing that we’re going to have to build in the U.S. over the next three, five, 10 years, that’s just a significant amount of demand for wood products.”

Source: “Lumber Prices Are Falling Fast, Turning Hoarders into Sellers,” The Wall Street Journal (June 15, 2021) [Log-in required.] and “Rising Material Challenges, Declining Builder Sentiment,” National Association of Home Builders (June 15, 2021)

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