Are lumber prices dropping?
The price of lumber may be crashing—but we're still far above pre-pandemic levels. The cash price is still up 211% from spring 2020. Prior to the pandemic, lumber prices fluctuated between $350 to $500 per thousand board feet. "Prices will continue to decline for the next few weeks and gradually stabilize. FortuneThe lumber bubble burst. Here’s what comes next
Read full article at 13WHAM-TV
24 June, 2021 - 10:26am
24 June, 2021 - 10:26am
23 June, 2021 - 01:21pm
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23 June, 2021 - 09:30am
U.S. housing starts for May were at 1.572 million units (seasonally-adjusted), a more than +50% increase over May 2020. Single-family starts, the largest component of new home building and the type which uses the most wood, were at 1.098 million units, up more than +4% from April 2021. Total housing permits were 1.681 million units, which is up almost +40% compared to one year ago. Single-family permits for May 2021 were 1.130 million units, a slight drop from the previous month, but don’t forget that April and March 2021 single-family permits were up a huge amount year-over-year.
“Most lumber commodities plunged in price, while panels and Doug-fir lost the least ground.” — Madison’s Lumber Reporter
Western S-P-F price levels in the US were all over the place for the week of June 10. While the general tone was one of significant correction across the board, reported price levels varied wildly depending on the source. Sawmills reduced their asking prices by triple digits in many cases, and secondary suppliers sold below those levels. Steady supply volumes remained outpaced by low key but strong demand, such that producers could be firm in rejecting the deepest counter offers. Buyers with more than a week’s worth of inventory waited out the market to see whether this downward trend will persist.
Canadian producers of Western S-P-F had another slow week of inquiry even as they reduced asking prices by massive chunks on bread and butter items. Order files shrank to approximately two weeks but sawmills remained loathe to accept deep counters on top of their slashed asking prices.
Lumber market conditions finally turned in the favour of customers — for the time being, at least — for the week ending June 10, 2021 the wholesaler price of benchmark softwood lumber commodity item Western S-P-F KD 2×4 #2&Btr corrected down significantly, by -$325, or -21%, to US$1,275, from $1,600 mfbm the previous week.
That week’s price is down by -$343, or -21%, from one month ago when it was $1,618.
“Green Douglas-fir producers held on for dear life as the rest of the market plummeted. Underscoring the strength of green wood were reports of secondary suppliers selling it for more than kiln-dried for a spell as sawmills adjusted their asking prices. Meanwhile, Purchase Order books were slammed closed according to players. With sawmill order files into early-July, producers thought they might be able to out-wait buyers.” — Madison’s Lumber Reporter
Compared to the price one-year-ago, when it was US$378 mfbm, for the week ending June 10, 2021, the price of Western S-P-F KD 2×4 was up by +$897, or +237%.
23 June, 2021 - 07:03am
Lumber has given up nearly all of its 95% gain from earlier in the year after US builders snuffed the rally in the home construction commodity by simply choking activity.
Since reaching an all-time high of 927,000 units in October 2020, the annual pace of new home sales in the United States has fallen around 20%. Reason: Fewer houses have been coming on the market each month, despite roaring demand.
Part of it has to do with pricing, which has hit record highs month after month. The Mortgage Bankers Association estimated that the average loan size for new home applications again rose in April, to $384,000, from $377,434 in May.
The other reason is the deliberate slowdown in activity by builders unable to stomach the ludicrous spike in prices of lumber, which reached above $1,711 per 1,000-foot board at the peak of its rally six weeks ago—up 95% since Dec. 31 and 417% higher from a year ago.
At Tuesday’s settlement, that same 1,000 foot board of lumber was just a touch above $890—just 2% higher from where it began 2021.
The crunch in timber prices came as the US Department of Commerce reported last week that permits for future home construction hit a seven-month low. Housing completions declined while the number of homes authorized for construction, but not yet started, rose to the highest level since 1999, indicating supply will likely remain tight for a while.
Just about three years ago, lumber fetched as low as $300 to $500 per 1,000 foot board. Then, the Trump administration slapped a 24% tariff on softwood lumber imported from Canada, the largest producer of the commodity in North America. That sent prices above $600 the first time in mid-2018.
The perfect storm came in July 2020, when supply bottlenecks from the pandemic squeezed delivery times for an already limited commodity. Lumber hit above $1,000 for the first time in September and continued making new four-figure highs through early May.
Until they caved in mid-May, lumber over the past year added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multi-family home in the United States, according to the National Association of Home Builders.
The ability of US builders to force lumber prices down as much as they did is a rare win in the post-pandemic age.
For months, manufacturers have complained about rising costs in the tight supply of almost everything—from microchips needed across industry to the resin required for making plastics and cardboard cartons—as an economy expanding from months of COVID-suppression now finds broken supply chains and other logistical bottlenecks in its way.
While the plunge in lumber’s value may not do much in bringing US house prices down, it does somewhat back the Federal Reserve’s narrative that the surge in commodity prices and resulting inflation amid the current economic rebound now is “transitory.”
That theme was expounded again on Tuesday by Fed Chairman Jerome Powell and his retinue of central bankers in speeches to Congress and the public as they continued to tell Americans that there was nothing to be unduly worried about on the economy.
This, despite the Fed’s favored benchmark for inflation—the core Personal Consumption Expenditure, or PCE, Index—expanding at a multiyear high of 3.1 percent in April, compared to a year ago. That is 1.5 times greater than the central bank’s own target of 2% per annum for inflation.
The more popular Consumer Price Index, meanwhile, grew by 5.0% in the year to May, its fastest since 2008.
The Fed last week indicated that there could be two hikes before 2023 to bring current interest rates of between zero and 0.25% to 0.6%, and a scale back in the central bank’s $120 billion of monthly stimulus as well, when appropriate.
But on Tuesday, Powell, testifying before the US Congress, and New York Fed President John Williams, during a Bloomberg interview, said the central bank will be a lot more patient with policy changes as whatever inflation pressure seen in the country was expected to dissipate as the economy continued to recover.
So, back to lumber: How much lower can prices go?
Paul Jannke, of Forest Economic Advisors, a highly-regarded industry expert, has predicted $800 levels or slightly lower by July.
Investing.com’s own Daily Technical Outlook continues to hold a “Strong Sell” on lumber, with its top two modeling variants—Fibonacci or Classic—suggesting an immediate bottom of between $828 and $797.
Under the Fibonacci model, lumber could move down in a range that begins at $878 and proceeds to $859, before sliding to $828.
In the Classic mode, the bottom could first reach $877, then $828 before moving down to $797.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.
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22 June, 2021 - 06:09pm
Wood-pricing service Random Lengths said that its framing lumber composite index dropped to $1,010, down from $1,210 a week ago. The index topped out at $1,515 late last month when sawmills were swamped with orders and could basically name their price to homebuilders, retailers and others worried about running out of material during the summer building season.
“Buyers addressed immediate needs and little more,” Random Lengths said. “The sales pace generated optimism in some species that a bottom was nearing, but volumes were insufficient for mills to re-establish order files and retake command.”
Lumber prices are still sky high, to be sure. The spot-price index was $459 a year ago and despite a dramatic tumble, lumber futures remain more than twice what is typical.
Besides pushing up new home prices and busting remodelling budgets, lumber prices have become a focal point of investor and monetary policymakers trying to determine whether runaway inflation is under way or if rising commodity prices are temporary and will ease as the economy moves further from lockdown.
Federal Reserve Chairman Jerome Powell said last week that the arc of lumber was illustrative of the latter.
“The thought is that prices like that have moved up really quickly because of the shortages and bottlenecks and the like," Mr. Powell said. "They should stop going up and at some point, in some cases should actually go down. And we did see that in the case of lumber.”
22 June, 2021 - 04:57pm
The price of wood skyrocketed to historic heights during the pandemic, mostly due to demand for new construction and home improvement projects.
But one local builder said it’s too soon to celebrate.
The President of Precision Home Crafters, Joshua Dean, said the fact that lumber prices are coming down is good news, but he said the cost of a critical component of homebuilding is still astronomically high.
Dean said lumber futures have been going down steadily over the past couple of months.
He said that’s good news, but the decrease is just a drop in the bucket.
“We’re still way elevated. I don’t want us to lose sight of how out of whack of where we were a year ago, but I’m not paying significantly less. Stuff has gone down 10, 15% here and there, but it’s not across the board, it’s not every product. Some products are still way higher than others,” Dean said.
But even as wood futures are coming down, Dean said Oriented Strand Board, or OSB, a critical plywood material used in homebuilding, is still significantly higher than last year and there’s no alternative for it.
“Doesn’t matter if it’s new construction, or an addition, or a second story, that material is what you have to use when you’re building walls and roofs and floors, and that material is up 600, 700% from where it was last year. That has continued to go up over the past two months while lumber futures have gone down,” Dean explained.
Dean said that’s still impacting his bottom line and making it more expensive to buy a home.
“Right now, if you build a new house, you’re still paying considerably more than what you should be paying for that same house. Your average homebuyer is struggling right now like, so if you build a new home, you run the real danger of your home not appraising for what the home is supposed to cost,” Dean said.
Dean added that it could take several weeks or months for the price decrease to be reflected in the market.
Analysts warn that prices will probably not fall to the levels they were before the pandemic anytime soon.
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22 June, 2021 - 04:37pm
That’s welcome news for some home builders, but one Midland lumber company isn’t feeling the same way.
Just a few months ago, business was booming at Framing Square Lumber, but the recent price drop is taking an ax to its profits.
Management explains prices soared when the coronavirus cut down sawmill staffs in the northeast while demand for new housing projects rose in the east.
The mismatched supply and demand helped the lumber industry explode and gave Framing Square Lumber some handsome profits.
But now, prices are falling back down, and suddenly the loads of lumber the company bought are worth half of what they paid for.
“We made good money on the way up. We’re going to give back some on the way down,” said Russell Jones, Chairman of Framing Square Lumber.
Jones says the company will have to sell a lot of its material at cheap rates as they wait for prices to settle down. Unfortunately, the company expects to lose more than it gained from the surge.
Jones recommends that you wait about six months before starting the project if you’re looking to build a new home. That’s when he believes that prices will likely be stabilized.
22 June, 2021 - 12:00am
A few weeks ago, lumber prices were at all-time highs, but after a significant drop, that’s no longer the case.
Before the COVID-19 pandemic, a thousand board feet of lumber cost about $500.
When the pandemic hit, that cost more than tripled to nearly $1,700 for a thousand board feet.
It was a combination of a shortage of supply and a big upsurge in demand.
Together, those factors meant lumber was so expensive that the Bank of America estimates the cost of a new home went up by $34,000.
But now, after months of climbing lumber prices, the upward trend has finally reversed.
Two weeks ago, lumber prices started falling.
Shane Schwingle, the retail general manager for Pukall Lumber, based out of Arbor Vitae, said the falling price of lumber is still a reflection of supply and demand.
“Demand is still strong, but supply is coming back so prices are dropping,” he said.
According to him, prices haven’t dropped much, just about $200 for a thousand board feet.
But it’s enough for people to pause on their building projects in hopes prices will keep going down.
Schwingle doesn’t know how much prices will drop or how fast it’ll happen.
They likely won’t go back to pre-Covid levels though.
“Lumber was so under-valued and under the market value for years,” he said. “Now it’s way over-inflated, I understand that. It’s going to drop, I’m going to say $800 to $900 a thousand [board feet] coming out of the mills.”
Schwingle said a slowdown in demand should lead to even lower prices, but the price drop won’t immediately impact consumers.
That’s because a drop in price from the sawmill doesn’t take into account the supply lumberyards already have in stock.
“It kind of takes time,” he said. “You see oil prices go down, that doesn’t mean gas instantly drops. It’s going to take a little bit before we can start lowering our prices.”
So for the sake of business, Schwingle hopes people pick up their projects again.
But not all of those projects are cheap – especially if they require lumber.
Lumber prices are up 180 percent since last spring, and they’re still climbing.
Mills are flourishing, but the same can’t be said of the Northwoods logging industry.
On a hillside south of Crandon, a giant yellow machine grabs logs with its mechanical arm, then cuts them to identical lengths.
Matt Jensen is the man behind the machine.