In the past week, U.S. lumber prices rocketed to a record high of $1,188 per thousand board feet of lumber. Taking this latest price hike into account means that lumber prices have risen by 232% since the start of the pandemic.
This is not good news for the construction trade or home DIYers. The bad news is that it is likely to get a whole lot worse in the coming months, as the ceiling is expected to get a lot higher. This week the price of lumber on the May futures market jumped by $48 to $1,420 based on a thousand board feet of two-by-fours. This was a large enough jump that it triggered market circuit breakers and lumber trading was halted for the day.
To get an idea of the scale of the price hike, we need to look back a mere four years. In January of 2017, the cost per thousand board feet was under $400. Indeed, in April 2020 the price had dropped to $358.
Why have lumber prices soared?
The pandemic is at the heart of the issue. It created the perfect conditions for lumber prices to surge. As the country went into lockdown many people stuck at home headed for the lumber yards in a surge of DIY activity. At the same time, sawmills were cutting production as workplace restrictions and even closures affected the industry.
Then there were the record low-interest rates. With housing stocks already tight throughout the country, these rates brought on a construction boom as buyers rushed to build.
These factors have caused a supply backlog despite timber production peaking at a 13-year high earlier this year.
Dustin Jalbert, senior economist and wood prices specialist at Fastmarkets RISI, said – “The pipeline for lumber and other wood products demand remains quite deep in 2021.
Builders have plenty of ongoing projects to keep working through, which is keeping lumber and panel demand high, and making it very difficult for mills to ramp production up fast enough to rebalance the market.”
Although he predicts that the market will eventually stabilize, he says that there are no guarantees that it will to April 2020 prices. He added – “The market is in trouble. It could spiral out of control in the next few months.”
According to Jalbert, for prices to correct the demand will need to ease off. He thinks that is unlikely to happen in the coming months, which have traditionally been the home building and renovation seasons. Jalbert’s assessment is that the prices are likely to remain high for at least some months.
This is a view echoed by Stinson Dean, CEO of Deacon Lumber. He is quoted in Fortune magazine as saying that lumber futures contracts as far into the future as November indicate that the prices are likely to remain high until at least then.
And with more money pouring into the American economy as the pandemic eases, and vast government financial incentives funding more projects, analysts are expecting the prices to remain high far beyond this date.