Factory work stoppages during the pandemic, coupled with our now swift economic recovery, have created an unprecedented number of shortages, of everything from used cars to avocados to palm oil. Among the most economically consequential of these is the shortage of wood products, which prompted the price of lumber to climb 300% above its pre-pandemic price this spring.
But the run on lumber appears to be over as prices continue to fall. Last week, the "cash" price fell $160, to $770 per thousand board feet of lumber, according to industry trade publication Fastmarkets Random Lengths. That's down 49% from its $1,515 all-time high on May 28. Lumber's price remains well above its pre-pandemic range of $350 to $500, however.
"The move up [in lumber prices] was quick and violent, and the fall we have seen has been equally dramatic," Steve Loebner, director of risk management at Sherwood Lumber, tells Fortune. "I think we are getting close to a trading level being established, which will bring in buyers off the sidelines and firm up the market. I don’t expect a return to the hyper volatility on the upside we experienced earlier this year, but it’s very reasonable to expect that prices will remain well above their historic norms overall."
As wholesale lumber prices fall, big-box retailers will eventually mark down wood products. However, each dip on the wholesale side could take weeks—if not months—to be reflected in store aisles.
What's driving the price correction? Economics 101. As lumber prices got exorbitantly high this spring, homebuilders and DIYers finally started to back off. In May, new home construction and home improvement sales were down 8.8% and 8.1%, respectively, from their March highs. On the supply side, meanwhile, sawmills—incentivized by record-high prices—upped their production levels. That combination of increased supply and weakening demand is helping to alleviate the lumber shortage.
Industry insiders tell Fortune they don't foresee lumber prices going back to their pre-pandemic levels anytime soon. However, they do believe the bear market will continue through this month.
"We could be in for a few more weeks of declines. Mill production has ramped up as the labor related issues from COVID dissipate. There's a lot of inventory buildup at the mills that has to clear," says Dustin Jalbert, a senior economist at Fastmarkets RISI, where he covers the lumber market. One wildcard, Jalbert adds, is the potential for a bad wildfire season in the U.S. Pacific Northwest and British Columbia—the epicenter of the North American lumber industry.
As Fortune has previously reported, this historic lumber shortage was spurred by a perfect storm of factors set off during the pandemic. When COVID-19 broke out in spring 2020, sawmills cut production and unloaded inventory in fears of a looming housing crash. The crash didn't happen—instead, the opposite occurred. Americans rushed to Home Depot and Lowe’s to buy up materials for do-it-yourself projects, while recession-induced interest rates helped spur a housing boom. That boom, which was exacerbated by a large cohort of millennials starting to hit their peak homebuying years, dried up housing inventory and sent buyers in search of new construction. Home improvements and construction require a lot of lumber, and mills couldn't keep up.
As the country reopens and pandemic-spurred trends—including home remodeling—begin to taper off, lumber demand should weaken. But that won't be the case for other surging commodities like gasoline. As more Americans return to commuting and air travel, demand for oil will only intensify. Simply put, the bursting lumber bubble doesn't necessarily mean price relief is coming for other commodities whose prices are spiking.
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