On 27 September, lumber futures prices dropped to $429.30 per thousand board feet, falling 60 percent from their peak last March to levels preceding the COVID era and its building boom, according to Random Lengths, an industry research service.
The lower prices signaled a slowdown in the construction industry.
Wood prices plunged when the COVID War began but soon soared as those still employed splurged on home improvements and new dwellings while there were no services or activities to spend money on.
Over the period, two-by-fours tripled their pre-COVID record price in an early warning of inflation and fractured supply chains, The Wall Street Journal noted.
In spring 2021, soaring lumber prices boosted the cost of a new house by $36,000, which we highlighted in “Lumber Prices Add $36,000 to Cost of New Home” (4 May 2021).
Builders now say cheaper wood is allowing them to cut prices and offer incentives to prospective buyers of new homes in an attempt to revive home sales without harming companies’ margins.
In April, the rate of single-family home construction reached its fastest in more than a decade, the WSJ said. Since then, it has slowed by 13 percent, offset by an increase in construction in multi-family homes.
Apartments use about two-thirds less lumber per dwelling unit than single-family houses do.
Lumber consumption will shrink by 2.5 percent this year and 4.5 percent in 2023 as the building industry slows under higher mortgage interest rates and the COVID-era building boom makes its final exit, the consulting firm Forest Economic Advisors (FEA) predicted.
Mills in western Canada, which produce a large share of North America’s lumber, need to see prices of $500 per thousand board feet to break even, FEA said, so are likely to control output to hold that price.
During the COVID era, mill ownership consolidated among fewer, larger companies. As a result, a relatively small number of firms are able to buoy market prices by cutting back production, advisory firm Wood Resources International said.
TREND FORECAST: While lumber prices are down, they are still way up. Before the COVID War they were in the $200s per thousand board feet range. But considering reports of record-low inventories, rising milling costs, higher wages, increasing energy and transportation costs etc., minus an escalating World War III or other wild card, they will stay in their current $400 range.