Wonder how many people were surprised by this headline: “Lumber Prices Are Falling Fast, Turning Hoarders Into Sellers.”
It’s atop a Wall Street Journal article from earlier this week that outlined that -- amidst a record plunge (that’s right, plunge) -- in lumber prices, there are now companies that normally buy construction lumber who now are selling off their stockpiles.
Almost sounds like trying to find hand sanitizer not so long ago, doesn’t it? These things happen to a commodity when demand goes crazy and supply chains get disrupted, like, say, during a pandemic.
What goes up eventually comes down, the only variant being how far and how fast.
Wood producers catching up while demand shows some softening
In this case, record-high lumber prices fueled by huge demand meeting record-low supply have suddenly gone south. After hitting an all-time high of $1,515 on May 28, the price per thousand board feet began falling, including a one-week record of $122 last week and another $114 this week to $1,210, according to Fortune.
That article notes that the market correction for that commodity is now 20%, enough to be considered a bear market. It also says this: “What's driving the dip? Homebuilders and DIYers alike are finally balking at the exorbitant price of lumber.”
Citing dips of 8.8% and 8.1% in May for new-home construction and home improvement sales, respectively, the article points out that “those dips coincided with the historic surge in lumber prices that occurred this spring.”
And there’s more supply on the way. Wood producers are now catching up with demand, so it would seem like a good time indeed to shed your excess inventory of lumber now.
Multiple market dynamics making their mark
Of course, it’s not as simple as a seesaw. Check out this Fox Business news interview with a lumber company executive for a broader view of the market dynamics in play here.
And, it should be noted, softwood lumber prices were still a record 154.3% higher in May than last May, so even though lumber futures have dropped from record highs, that basic building material is still quite high by historical standards.
And while there quite obviously is reason to expect a lot of builders are balking at elevated prices, it’s also just as reasonable to assume that the reason that many others have kept on buying is still in place: demand.
The Millionacres bottom line
The National Association of Home Builders (NAHB) reported last month that rising pandemic-months lumber prices have added an estimated $35,872 to the average price for a newly built single-family home and $119 a month to the rent for a newly built apartment. The result is that the average sales price of a new single-family house hit $397,800, moving up in line with record price hikes for existing homes, too.
The point here is that the demand remains. And as long as it does, homebuilders and residential real estate investors can expect to recoup their investment in building supplies, and with falling prices, maybe even boost their profits.
In other words, this might be more of a problem for timberland real estate investment trusts (REITs) and wood products companies than the end user, at least in investment terms.