Canada

Soft Demand For New Housing Crashed Lumber Prices Over 40% In Just 38 Days: BMO

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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15 Comments

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  • Kate Wright 4 months ago

    What if the central banks are right, and they are actually fighting a deflationary environment, and this was all transitory? I mean, I don’t believe it, but it’s a more and more realistic possibility by the day it would appear.

    • cb 4 months ago

      Deflationary could happen because the buying power is less because of inflation.

    • Jimmy 4 months ago

      My thought is we need more money supply but also more debt to keep inflation.

      I think the available pool of people willing to borrow might be shrinking. Also, negative rates become an issue I think. Corps pay off debt instead of except negative rates also difficult for banks to make money.

      • Marc 4 months ago

        I think you’re confused about how the money supply is created. Money is created when people take out loans. High nflation is caused by excess money supply growth, which occurs when there is a mismatch between low interest rates and the strength of the borrower.

        • Jimmy 4 months ago

          Fair enough.

          I my mind governments can create money by buying debt and assets. But, if it does not result in other actors borrowing and creating more money then the government buying debt doesn’t work.

          The government is essentially the only actor left at the party. (Negative rates could mean actors willing to borrow is not keeping up with gov’t purchases) Other actors are taking gov’t support and paying off debt decreasing money available in the system? Or inflated stock prices (AMC)….. And negative rates become a issue for lenders impeding the ability to lend money…..

          No more lambs left to slaughter?

          Does this make sense? (You do not get this information from a text book)

    • GTA Landlord 4 months ago

      They’re definitely right, but not how people think they are. They doubled up on inflation to make sure capital expands sufficiently to absorb any excess savings through a higher temporary cost of living. m

  • The Ghost of Rodney Dangerfield 4 months ago

    It’s like I keep telling my wife “Baby!” I said. “You gotta gimme a break sometimes. Wood can’t stay up forever!”

    I tell ya. I don’t get no respect.

  • Honli 4 months ago

    Ask yourselves these questions.
    1. Did millions of people lose their jobs?
    2. Did these millions of jobs come back yet?
    There is only inflation due to money printing, this means asset prices will continue to increase. This will also mean they will not increase interest rates until jobs number recover. Some people need to stop wishful thinking about home prices crashing in this kind of environment. Toronto Vancouver will most likely suffer a crash in 2 years but not other cities.

    • Marc 4 months ago

      Has to be an exceptional amount of ignorance to make the argument prices only rise due to money printing, while reading an article about a commodity falling 40% in one month.

      • D 4 months ago

        The past 1 year, lumber firms were hoarding there supply, loads of proof including pictures on the internet. Regardless of what’s happening today, price of lumber has inflated the past couple of years via expansionary (inflation) policy.

      • Bkl 4 months ago

        Its takes exception amount of ignorance to not understand what he said. You made no logical argument or any reasoning. I assume you are having a hissy fit because he made you feel bad by exposing your wishful thinking on asset prices? LOL

        • MC 4 months ago

          Slow bus over here must have a hard time reading, since he inferred things they didn’t say.

  • David Leham 4 months ago

    A lot of people in the comments appear to have heads made of wood. Lumber prices are extremely volatile, as you can see in the frickin’ chart. I don’t even know what’s to argue about.

  • Charlie Lee 4 months ago

    Any word on developers offering to give some of the money back they’re asking for? Didn’t think so.

  • Rene Albert 4 months ago

    A 40% drop in the price of lumber is certainly a big one…but current prices are still almost 4 times what they were a year ago. As a commodity, lumber will likely remain expensive for the long term because of a dire need for more homes across North America. In Canada logging is necessarily reduced due to over cutting in the past, plus poor forest management by our governments who own and regulate some 90% of Canadian forests by the way…. And if that ticks you off, call your MPP and MP!

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