Been holding off on home renovations for now? You're not alone. Investors and homeowners across the country have pulled back on many home improvement projects after the sticker shock from price increases and inventory shortages. This hesitancy may have helped to rebalance the supply and demand of lumber in the past six months as prices have finally started to decline. This has led contractors, real estate investors, and homeowners to let out a sigh of relief that the lumber craze is almost over. But will demand increase again now that lumber prices are heading downward?
What is the lumber craze?
The so-called lumber craze of 2021 happened after COVID-19 shut down the world economy and kept people home more than they ever had been before. Mills, lumber yards, and even some construction companies shut their doors until it was deemed safe to have employees back working in close quarters, leaving anyone looking for lumber to have to source it from backstock.
With everyone home more than normal and noticing the little things that needed fixing or wanting to get more comfortable in their space, along with excess money in the bank from less outings and more time on their hands, home improvement projects increased. This quickly depleted the backstock of lumber. What followed is as predictable as anything can be in the world of commodities: Whenever there is increased demand and decreased supply, prices rise.
Just how high did it go?
Lumber, the commodity, reached an all-time high of $1,686 in May 2021. For perspective, it was hovering around $300 in May 2020. Prices over the past five years tend to ebb and flow around the $400 mark, making the prices in May nearly four times the normal average. And it happened almost overnight. Over the span of four months, lumber prices spiked 200% and then normalized back to near their starting point. That's a huge amount of change in a rather short time frame.
The price per board foot is now around $150 less than it was in March when things really started heating up. Lumber futures have plummeted in the past couple months as well, falling 40% in June, making it the largest decline in 43 years. While the futures are based on speculation, they do still represent sentiment, and it seems that investors think supply and demand is finally starting to rebalance itself.
Is the lumber craze over now?
Just because prices have started dropping overall, it's not quite time to pull out the party hats and confetti yet. The price drops are not uniform across the board. In fact, 2x 4s have started showing price declines, but sheathing has not. And other commodities that are involved with renovations, like the window to put in your newly framed wall, are a whole other story.
You must also keep perspective on prices overall. Yes, lumber prices have declined 45%, but they are still up over double from their lows last year. If the project is a necessity, you can be happy the prices are becoming slightly more reasonable. But if it isn't absolutely necessary, it might not be a bad idea to wait it out a bit longer -- prices still aren't cheap, and another surge in demand could easily reinvigorate the lumber craze.