Canada

Timberrr! Lumber Prices Are Crashing At 30% Below Peak, And Forecast To Fall Further

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 — Commodity

The 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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18 Comments

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  • Marc 1 week ago

    This is some funny stuff. I have a friend just outside Montreal that was asked to pay $50,000 more to handle lumber costs last month. I wonder if he’s going to get 30% back. Ha! Not a chance.

    • Credit Guy 1 week ago

      This is what I was wondering. They were in such a rush to pass the costs on, but they won’t be to taper back on the escalations they provided.

      • Bob Walter 1 week ago

        Up like a rocket and down like a feather.

  • JR 1 week ago

    Second data point to confirm we didn’t release inventory, because it’s difficult to price in cost escalations. Developers book maybe 15% profit, so the material cost plans are only 3-4% per year.

    Lumber is up 200%. No one can plan for that kind of increase, and if we did we would have to pass it on to the consumer. It’s best to just complete, and hold off on project launches until it makes more sense for everyone.

    • RainCityRyan 1 week ago

      And the issue becomes clear when you have a massive amount of the national GDP just “hold off on projects”.

      When the folks who build these projects are out of work or seeing longer periods between work the whole economy is slowed disproportionally.

  • Ahmed 1 week ago

    The lumber narrative would have made sense for the industry if prices were rising by $30k, and not 40% of the cost of the house.

  • Rupi 1 week ago

    Next will be housing…can’t use rising timber prices as justification any longer.

  • Marco Von Marcovich 1 week ago

    Finally… I just wish it would have happened earlier as I wanted to put in a deck this year but prices went insane hehe

  • Douglas Brown 1 week ago

    Stop buying Lumber. There are other building materials available. This is just a cash grab by the Corrupt people who are in control. There is no lumber shortage and there is no need for higher prices. The higher prices come fro greed.
    Have a great Day

  • Warren Caughill 1 week ago

    Is this information current? June 2021?
    Retail dimensional lumber is up 6.5% from May. And due to new tariffs is not forecast for some time. Most likely Sept-Dec to “crash” as you say. Let’s also add +250% material costs for electrical and plumbing if you can get the material.
    Let’s all face the facts that we are in a crowded competitive world and if you are doing a major renovation or new home build, it’s going to hurt

    • Jason Chau 7 days ago

      It says that was yesterday’s numbers, and it looks correct. Random length commodity futures is the number used by analysts, usually for SPF. I’m guessing retail dimensional is going to take 2 months to feel the trickle down.

      Interesting to see retail is still seeing prices inch higher, despite relief clearly around the corner.

      • Trader Jim 7 days ago

        Lumber down another 4% since yesterday too.

  • Judy 7 days ago

    It may make sense to hold off on building. Wondering why it takes a builder as long as six to seven years, and the start of your home has not begun..
    Unreasonable in my estimation..a lot of red tape.. then builder is asking for more monies..
    Totally unfair. Thinking it might be one sided. Purchasers are left waiting and hoping their home gets built, outstanding as we read this.

  • Vincent Fornelli 7 days ago

    Lumber yards have been filled with lumber. Shipping it to people is another story.

    • Grut 7 days ago

      Even so, how do you account for prices to rise that much on transport and milling? $4 sticks are going for $25 now. The store I normally go said they just won’t stock at these prices.

  • Derek 6 days ago

    This article is extremely misleading!!! The price of Lumber has not dropped, the futures prices have dropped but not the today price. Most grades actually went up last week, went up less than what they have been going up but still went up.

    • Liam 6 days ago

      Just because you don’t understand something, doesn’t mean it’s “misleading.” It’s the current contract prices (i.e. what you pay to buy the next delivery).

      If you’re buying at retail, that’s a totally different issue. A builder doesn’t buy at retail though, they place an order through the distributor that gets it based on current contract pricing.

  • Barry Allen 4 days ago

    I don’t care about houses or how much you are paying to build/reno, I only care whether my lumber stocks keep going up.

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