The twin-peaked lumber bubble of 2021 and 2022 that drove home building costs through the roof and exacerbated inflation is over. Lumber prices plunge 75% from their May 2021 record high of $1,514 per thousand board feet to just $366 this week, roughly matching pre-pandemic levels. This dramatic decline, reported by Random Lengths’ Framing Lumber Composite Price Index, brings a positive outlook for homebuilders and homeowners alike, as the cost of building homes becomes more affordable. Industry experts blame (1) the record drop in U.S. housing affordability and (2) a slowdown in home renovations, for quashing lumber demand.
Factors Behind the Lumber Price Plunge
Several factors have contributed to the significant drop in lumber prices. A record decrease in U.S. housing affordability and a slowdown in home renovations have reduced demand for lumber. High home prices and elevated mortgage rates have made it more challenging for consumers to buy new homes or renovate their existing ones, leading to fewer construction projects and slowing lumber sales. Additionally, overly optimistic industry demand forecasts amid hopes for plunging interest rates and rising home sales led lumber mills to increase supply at the wrong time, further driving down prices.
Home Renovation Slowdown
The home renovation market, which experienced a boom during the pandemic, has also shown signs of cooling. Home Depot reported a 3.2% drop in U.S. comparable sales in the first quarter, largely due to decreased engagement in larger discretionary projects like kitchen and bath remodels. This slowdown, coupled with long-running housing affordability challenges, has led to a reduced demand for wood products. However, this presents an opportunity for those looking to build or renovate, as lower lumber prices make these projects more financially feasible.
The Supply Side Conundrum
On the supply side, the lumber market is experiencing an adjustment period. Following the price surge in 2021 and 2022, the lumber industry ramped up production, anticipating sustained high demand. However, it takes years to create new sawmills and boost supply, resulting in an oversupply at a time when demand has waned. This classic “bullwhip” effect has led to a market correction, with prices dropping to more manageable levels. Industry experts predict that lumber prices will likely remain near their current levels through 2024, providing stability and cost savings for homebuilders.
This positive turn in the lumber market brings much-needed relief to homebuilders and renovators. With lumber prices back to pre-pandemic levels, the cost of building and renovating homes is becoming more affordable, encouraging new projects and making homeownership more attainable for many.
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“Lumber prices are plunging. Blame the record drop in U.S. housing affordability and a post-pandemic double bubble ‘hangover’“, Fortune.com, by Will Daniel, June 30, 2024,