For a period between March 2020 to the middle of 2021, the prices of lumber spiked considerably. This was especially true between October 2020 and April 2021 when lumber reached its peak at $1500.50 per thousand board feet. During that time, the sharp increase in prices was driven by several factors:
- Increase in demand for single-dwelling units
- Increase in need for home improvements, especially during the pandemic
- Supply chain disruptions.
- Tariffs on Canadian softwood lumber
Note the volatility of lumber prices per thousand board feet in the chart below:
Since the start of 2021, the price of lumber has been volatile. There are many economic factors sending lumber prices up or down throughout the year, resulting in the most unpredictable trend ever for lumber prices. However, since the middle of 2022, there have been promising signs that the prices of lumber could be stabilizing, making it ideal to acquire lumber now.
Why Are the Prices of Lumber Decreasing?
The good news for woodworkers and potential homeowners is that the price of building materials, especially lumber, has decreased considerably since its peak in May 2020. Economic indicators that lumber prices will remain at a stable price of around $600 continue to persist for the time being. According to Dustin Jalbert, the lead senior economist of Fastmarkets RISI’s lumber team, the volatility of lumber prices may have ended. Here are five important factors in keeping the lumber price stable:
Weak Construction Demand for Single-Family Dwelling
As the primary driver of demand for commodities such as lumber, the real estate industry is one of the most significant indicators determining the rise and fall of construction materials such as lumber. The volatility, not only in lumber but in the prices of building materials, affects the overall price of construction. The labor wage increases between 2017 and 2021 were another factor in the rising cost of construction. The total cost of construction has dissuaded many potential homeowners from acquiring new single-family homes.
Another factor that affects the decline in the sudden drop in housing demand is a trend in population shift. The population shift happens when people move from more expensive states, such as California and New York, to less expensive ones, such as Ohio and Florida. As the demand for housing, whether built or for construction, increased in the less expensive states, the housing prices ramped up, causing more people to rent instead of putting up new homes. These people will wait until mortgage rates ease up and housing prices stabilize.
Other reasons for the decrease in demand for single-family dwellings are the sharply rising mortgage rates and supply chain constraints on other materials aside from lumber.
Rising Interest Rates
With help from the U.S. Federal Reserve, interest rates and inflation have been stable for almost a decade. However, when the COVID-19 pandemic hit, the U.S. government decided to infuse trillions of dollars to stimulate the economy through stimulus payments. After rounds of corporate bailouts and stimulus payments, the effects of this spending on inflation started to be felt. The Federal Reserve recently took action by increasing interest rates to tame the rising inflation rates. Moreover, Janet Yellen, the U.S. Secretary of the Treasury, recently stated that the Federal Reserve would likely increase interest rates further to help prevent the U.S. economy from collapsing.
The higher interest rates affected lumber prices because of their effect on U.S. homebuyers. Moreover, current homeowners have capitalized on the rise in home prices by selling their homes. The resulting increase in the housing resale market negatively impacts the demand for new construction. With a promise of higher interest rates and the current high prices of building a house, U.S. homebuyers are likely to wait it out.
Uncertainty
Many Americans considering a substantial investment in the form of home construction or home improvements will likely wait until the amount of uncertainty happening in the world eases. For instance, the runaway inflation rates have negatively impacted the bank accounts of Americans, eroding their buying power at a faster rate since the pandemic hit. Moreover, news such as the war in Ukraine, increasing crime rates, and ongoing supply issues add to the financial uncertainty each American feels resulting in the decision to defer making substantial purchases.
Are Lumber Prices Likely To Decrease Further This Year?
The three factors discussed significantly affect lumber prices. However, market forces that contributed to the volatility of lumber prices last year are also at play. Even if the drop in the demand for new home construction persists, these factors still help keep lumber prices from dropping further:
Supply Chain Issues:
One of the most extensive lumber exporters in the world is Russia. With U.S. sanctions on Russia affecting lumber imports from the country, wood products, such as baltic birch, will disappear. Generally, the effect on the supply of lumber will affect prices if the demand remains constant at this time.
Logistical Issues:
There is currently a shortage of trucks to haul lumber into the country. Moreover, there is also a labor shortage for qualified operators of these transports. The decrease in the availability of trucks drives transport prices higher.
Fuel Prices:
Aside from lumber, Russia is also one of the world’s biggest oil exporters. With the decrease in the overall supply of oil, fuel prices will continue to remain at a high level. Because transportation costs are a factor in the price of lumber, this factor will persist in keeping lumber prices from going down as well.
Takeaways: When Is the Best Time To Buy Lumber?
With all these factors considered, it is reasonable to expect that the prices of lumber will remain stable for the next few months. However, with supply issues, a period of uncertainty, and the impending increase in housing construction demands that may happen once potential American homeowners decide to resume new home construction, buying lumber right now is the right choice.
As for choosing the source for your lumber, the best places to buy lumber are lumber yards, such as Bohnhoff Lumber Co. We provide the widest selection of hardwoods and certain varieties of softwoods for woodworkers and the construction industry at the best prices in Southern California. Moreover, we also help woodworkers find and mill the perfect lumber pieces for their unique needs. After a period of volatility in lumber prices, getting your lumber from a dependable lumber yard that offers the best value is the smartest choice you can make as a woodworker, a hardware store owner, or anyone who needs lumber right now. For prices and availability of lumber in our Los Angeles lumber yard, call us at (323) 263-9361.