Lumber prices are still crashing, marking the ninth consecutive week of declines. The cost of the commodity has seen more than a quarter of its value fall in the past month. Since the peak price reached just over two months ago, prices are now down by more than half. As much as they’ve fallen, experts say the carnage isn’t even close to over yet.
Lumber Prices Have Dropped Over 28% In A Month
The price of lumber is still plunging lower, and getting cheaper by the day. The commodity closed at US$712.90/mbf, down 10.1% from a week ago. Compared to a month ago, that works out to a 28.4% drop. Falling that much in such a short period is almost enough to qualify as a crash. However, it’s down even more from its mind-blowing peak a couple of months ago.
Lumber Prices – Commodity
The closing prices of random length lumber.
Source: TradingView; Better Dwelling.
Lumber Prices Are Down Over 57% From Peak
Lumber prices are down significantly from the all-time record reached two months ago. The cost peaked at US$1,686/mbf on May 7, so they’ve tumbled 57.7% lower since then. Virtually all gains in 2021 have been reversed, and prices are now at 2020 levels. This is still high, to be honest, but the recent decline has brought it down a lot, and they’re still falling.
Buyers Are Rejecting High Lumber Prices
There’s a lot of reasons lumber prices are falling, from a decline in new home sales to more supply. That’s not the biggest reason though. The biggest reason is buyers have said, “screw it.” They just won’t pay higher prices.
Increasingly homebuilders have delayed projects and building to avoid high prices. Retailers are ordering less, to avoid holding expensive inventory they’ll have to sell at a lower price if the market crashes. Like it just did. Most bizarre is lumber execs have suggested if you don’t need lumber, just don’t buy it. At least one has told people to put off projects, and wait until the new year for lower prices.
Falling Lumber Prices May Bring Relief To New Home Prices
Falling lumber costs can bring a little relief to new home prices… or at least higher builder margins. Lumber is one of the biggest expenses when building a home. When prices jumped to US$1,200, the industry had said this adds on average US$30,000 per home in building costs. That’s not the cost of lumber. Just the additional cost compared to buying pre-pandemic. This increase has forced developers to even circle back to ask for more money to finish their home.
Now that prices have fallen, the amount added to prices has been nearly cut in half. It still adds about US$17,000 more to a home than pre-pandemic prices. However, that’s better than the US$30,000 it was adding just a few weeks ago.
Even with the sharp decline we’ve seen in lumber prices, experts still see it falling further. Next year prices are forecast to average at US$400/mbf, so another 43% lower. Although some think it’ll likely bounce a little from here, at least before continuing the forecast spiral lower.
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The lumber exec is simply acknowledging the cyclical nature of the commodity. ‘Wait if you can.’ If contractors signed delivery contracts without securing material, that’s their problem. They must now chose to make a little less profit or totally f*ck over their clients to squeeze out every dime.
They made way more on land appreciation than any lumber increase could undo.
No, contractors are failing to take posession of the wood or pushing the costs back onto the buyer. Most new home contracts allow them to do that. If they don’t, they would be paying to build homes, which none of them would do.
Either your buyer goes bust, you do, or you want and hope the person that paid isn’t too pissed.
I bet the Feds are delighted at this news given the threat that high cost lumber posed to their agenda of propping up the economy with real estate.
Lumber circles, Real Estates cycles
Crashing? More like returning to normal.
No one in Canada understands what crash means. It’s such a foreign concept apparently. haha.
Remember that in 2019, there was a lumber mill crisis in BC. Strong demand and high price put a halt to this, but now that the price is going down and that affordable lumber supply is rare, you will probably see mills closing again.
Lumber like oil, copper, tin, gold, pure silicon for semiconductors have inelastic demand and elastic supply. We have a 500 year supply of lumber with current harvesting rates. This was all a pump and dump.