Lumber prices are still making a nose dive, as supply catches up and demand softens. Last week we mentioned lumber prices have officially crashed from their all-time high. This week BMO economist Carl Campus wrote to clients that prices have fallen below US$1,000/mbf. This is the first time it fell below that mark since March. Lumber is still more expensive than before the pandemic, but prices are crashing hard.
Lumber Prices Are Down Over 40% From Peak
Lumber completed a technical crash last week. Now it’s shaved off another 10 points from the all-time high since then. On May 7th, random length framing lumber reached a peak of US$1,670/mbf. Today the market closed at US$996/mbf. This is the first time since mid-March that prices have sunk below the four-digit mark, “neatly unwinding the prior two-month surge,” wrote Campus.
Fundamentals For Higher Demand Remain Solid
Most fundamental factors stimulating demand remain similar to a few weeks ago. Low interest rates, work-from-home, etc. are still strong, said the economist. These factors appear to still be driving home prices higher, but at lower volumes.
“… the softer-than-expected April housing starts was clearly a turning point for market sentiment. With demand finally blinking, the supply side appears to have gained a better footing, relieving near-term price pressures,” he wrote.
US Home Sales Data May Have Shocked Lumber Traders
Falling new home sales in the United States are attributed to high prices. Despite low interest rates, and little else changing, prices are just too darn high. The faster home prices rise, the faster the qualified pool of buyers shrinks. That’s how banksters say, people can’t afford the new homes. Prices are still climbing, despite new home sales tapering. That is called a divergent trend, and usually doesn’t last very long.
The April home starts data was only released on May 18. This would help to explain why lumber prices continued to climb into May, despite a soft April. People weren’t quite aware of how quickly future lumber demand had fallen off.
If people asked the lumber industry, they could have got a few hints though. US lumber execs have said, retailers and homebuilders are tapering purchases. They’re even telling clients to put off buying lumber if possible.
Despite lumber crashing, prices are still significantly higher than they were last year. This is adding tens of thousands of dollars to the cost of new homes. Homebuilders are even circling back to existing buyers, and asking for lumber cash.
Another expert at BMO has forecast prices still have a long way to go, even from here. His call would see lumber prices fall an additional 60% from today’s close. That would crater prices from the all-time high in May, but still be above pre-pandemic levels. That’s how quickly lumber prices increased. Another 60% drop doesn’t bring it back to where it was pre-pandemic, only closer to that mark.
“This is welcome news for homebuyers, though ultimately longer-term issues are likely to prevent a full retreat back to previous average levels,” said Campus.
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