The recent surge in lumber prices helped to push home prices higher, but now they’re crashing. Lumber prices closed today nearly 30% below the all-time high reached in May. The recent surge in prices pushed builder costs up by tens of thousands of dollars. This sent new home prices much higher, leading to an interesting potential reversal. While lumber prices have crashed, a much bigger drop is still forecast from here.
Lumber Prices Are Down 27% From Last Month
North American lumber prices are rapidly collapsing, as the market abruptly changes. The price fell to US$1,221/mbf today, down 4.91% from the close on Friday. Prices are now down 26.88% from a month ago, which means prices are dropping about as fast as they increased. Lumber, being a popular input cost, was pushing the price of many goods higher. A little relief has arrived, but prices have a long way to go to unwind the pandemic squeeze.
Lumber Prices — CommodityThe closing prices of random length lumber. Source: TradingView; Better Dwelling.
Lumber Prices Are Down 30% From The Record High
The downturn is so large, it technically qualifies as a crash — having dropped more than 20% from the high. Prices peaked on May 10 of this year, and have since fallen 29.54% from that level. It’s still up around 200% from the year before, but coming down fast.
The pandemic factors that pushed lumber costs higher are rapidly unwinding. For example, reduced capacity due to pandemic restrictions on employees are being lifted. New home prices also reached a saturation point, where demand is now falling. Just these two factors applied considerable pressure on lumber prices.
Possible Relief For New Home Price May Be Coming
Falling lumber prices can have a large impact on new home prices, or at least the cost of building them. The rise in lumber prices over the past year adds about US$30,200 to the cost of a single-family home. It’s about US$13,000 lower than it was at the peak price this past May. Similarly, increased lumber prices add about US$11,100 to the price of a multi-family home. This is about US$4,900 in savings from the peak as well. These were just the additional costs on lumber, not the actual cost of lumber.
Recently lumber prices have caused developers to hike new home prices. Some developers have even had to ask homebuyers to pony up thousands more to help cover costs. Others have held back on launching new inventory, until costs become stable. Most did this to prevent being squeezed by material prices rising after sale. It also had the benefit of not passing on a material risk premium to buyers though, so that’s a plus.
Lumber Prices Forecast To Fall Another 60% More From Here
Analysts are forecasting a much bigger drop in lumber prices is coming in the next few months. One of Canada’s largest banks is calling a drop to US$415/mbf in 2022. That is 66% lower than the current price, which may seem like a lot — but lumber is more volatile than people think.
Benchmark Western Spruce-Pine-Fir (SPF) Price Forecast
Source: BMO; Haver Analytics; Better Dwelling.
Lumber prices have crashed, and the factors pushing prices lower are gaining steam. The lifting of pandemic restrictions is reducing mill capacity restrictions for staff. New home prices have also reached prohibitively high prices, resulting in falling demand. Still, there’s a long way to go for lumber prices to get back to reasonable levels. The good news is prices are expected to fall as quickly as they increased. That kind of sucks if a developer asked you for a premium a few weeks ago, doesn’t it?
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