{"id":238164,"date":"2024-06-30T12:07:12","date_gmt":"2024-06-30T12:07:12","guid":{"rendered":"https:\/\/michigandigitalnews.com\/index.php\/2024\/06\/30\/lumber-prices-are-plunging-blame-the-hangover-from-the-pandemic-bubble\/"},"modified":"2025-06-25T17:15:49","modified_gmt":"2025-06-25T17:15:49","slug":"lumber-prices-are-plunging-blame-the-hangover-from-the-pandemic-bubble","status":"publish","type":"post","link":"https:\/\/michigandigitalnews.com\/index.php\/2024\/06\/30\/lumber-prices-are-plunging-blame-the-hangover-from-the-pandemic-bubble\/","title":{"rendered":"Lumber prices are plunging\u2014blame the &#8216;hangover&#8217; from the pandemic bubble"},"content":{"rendered":"<p> [ad_1]<br \/>\n<br \/><img decoding=\"async\" src=\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2024\/06\/GettyImages-2158487981-e1719603429319.jpg?w=2048\" \/><\/p>\n<p>The twin-peaked lumber bubble of <a href=\"https:\/\/fortune.com\/2022\/05\/27\/lumber-prices-nosedive-what-to-expect-next\/\" target=\"_self\" aria-label=\"Go to https:\/\/fortune.com\/2022\/05\/27\/lumber-prices-nosedive-what-to-expect-next\/\" class=\"sc-80b85506-0 pUpMT\" rel=\"noopener\">2021 and 2022<\/a> that once drove home building <a href=\"https:\/\/fortune.com\/2021\/02\/28\/home-prices-new-homes-lumber-shortage-wood-prices-real-estate-market\/\" target=\"_self\" aria-label=\"Go to https:\/\/fortune.com\/2021\/02\/28\/home-prices-new-homes-lumber-shortage-wood-prices-real-estate-market\/\" class=\"sc-80b85506-0 pUpMT\" rel=\"noopener\">costs<\/a> through the roof and <a href=\"https:\/\/fortune.com\/2022\/07\/09\/lumber-price-bubble-housing-market-has-inflation-peaked\/\" target=\"_self\" aria-label=\"Go to https:\/\/fortune.com\/2022\/07\/09\/lumber-price-bubble-housing-market-has-inflation-peaked\/\" class=\"sc-80b85506-0 pUpMT\" rel=\"noopener\">exacerbated<\/a> inflation is now nothing more than a memory.<\/p>\n<div>\n<p>Spot lumber prices have plummeted 75% from their May 2021 record high of $1,514 per thousand board feet to just $366 this week, roughly matching pre-pandemic levels, according to Random Lengths\u2019 Framing Lumber Composite Price Index. Lumber\u2019s price drop has been particularly dramatic in just the last 90 days in the futures market, with contract prices for July falling 28% to $466 per thousand board feet (futures prices are around $100 above spot prices due to a delivery fee).<\/p>\n<p>Industry experts blame the record <a href=\"https:\/\/fortune.com\/2024\/06\/20\/housing-affordability-crisis-long-plagued-renters-coming-for-homeowners\/\" target=\"_self\" aria-label=\"Go to https:\/\/fortune.com\/2024\/06\/20\/housing-affordability-crisis-long-plagued-renters-coming-for-homeowners\/\" class=\"sc-80b85506-0 pUpMT\" rel=\"noopener\">drop<\/a> in U.S. housing affordability and a slowdown in home renovations for quashing lumber demand. It\u2019s just too expensive for consumers to buy new homes or renovate their current ones. That\u2019s led to fewer construction projects, and slowing lumber sales. Meanwhile, overly optimistic industry demand forecasts amid hopes for plunging interest rates and rising home sales have led lumber mills to increase supply at the worst possible moment.\u00a0<\/p>\n<p>Put it all together and \u201cit\u2019s an ugly scenario\u201d for the lumber market, Ashley Boeckholt, director of lumber and risk management at Sitka Forest Products USA, told <em>Fortune<\/em>. \u201cWe\u2019re kind of having a hangover from a great three years.\u201d<\/p>\n<figure class=\"wp-block-embed is-type-rich is-provider-datawrapper wp-block-embed-datawrapper\">\n<p><iframe class=\"\" aria-label=\"Interactive line chart\" id=\"datawrapper-chart-Gq6fM\" frameborder=\"0\" height=\"442\" loading=\"lazy\" scrolling=\"no\" src=\"https:\/\/datawrapper.dwcdn.net\/Gq6fM\/2\/\" style=\"border:none\" title=\"Lumber prices have plunged since March\" width=\"100%\"><\/iframe><\/p>\n<\/figure>\n<h2 class=\"wp-block-heading\">The demand side: A record deterioration in housing affordability and a renovation slowdown<\/h2>\n<p>The factors behind lumber\u2019s price moves are varied and complex, but, as always, it all comes down to supply and demand. On the demand side, sky-high home prices and elevated mortgage rates have led to a record drop in U.S. housing affordability over the past few years. The Atlanta Federal Reserve\u2019s Home Ownership Affordability Monitor (HOAM) Index is now at its <a href=\"https:\/\/www.atlantafed.org\/center-for-housing-and-policy\/data-and-tools\/home-ownership-affordability-monitor\" target=\"_blank\" aria-label=\"Go to https:\/\/www.atlantafed.org\/center-for-housing-and-policy\/data-and-tools\/home-ownership-affordability-monitor\" rel=\"noopener\" class=\"sc-80b85506-0 pUpMT\">lowest level<\/a> since before the Global Financial Crisis of 2008.<\/p>\n<p>As a result, even with an ongoing housing <a href=\"https:\/\/fortune.com\/2023\/08\/11\/root-cause-housing-affordability-crisis-crunch\/\" target=\"_self\" aria-label=\"Go to https:\/\/fortune.com\/2023\/08\/11\/root-cause-housing-affordability-crisis-crunch\/\" class=\"sc-80b85506-0 pUpMT\" rel=\"noopener\">shortage<\/a>, demand for new homes has remained subdued, leading to similarly weak demand for lumber to build them. \u201cHousing affordability is just really offsides right now,\u201d Dustin Jalbert, a senior economist who leads Fastmarkets\u2019 Wood Products team, told <em>Fortune<\/em>. \u201cIt&#8217;s one of the least affordable times to buy a house in decades and the pool of qualified buyers is starting to kind of dwindle a bit, too. So high interest rates eventually do start to bite.\u201d<\/p>\n<p>Weak demand for new homes led home builder confidence to drop to a five-month low last month, and housing starts fell 19% from a year ago. Most of that drop was the result of the 52% year-over-year <a href=\"https:\/\/www.linkedin.com\/posts\/lance-lambert-0bb5b677_single-family-housing-starts-are-down-2-activity-7209717907713396736-kQGO\/\" target=\"_blank\" aria-label=\"Go to https:\/\/www.linkedin.com\/posts\/lance-lambert-0bb5b677_single-family-housing-starts-are-down-2-activity-7209717907713396736-kQGO\/\" rel=\"noopener\" class=\"sc-80b85506-0 pUpMT\">plunge<\/a> in multi-family housing starts. For a while, steady single-family home starts kept lumber prices from dropping significantly, because single-family homes use more wood than multi-family projects. But now that trend has flipped as well, with single-family housing starts down 2% year-over-year in May.<\/p>\n<figure class=\"wp-block-embed is-type-rich is-provider-datawrapper wp-block-embed-datawrapper\">\n<p><iframe class=\"\" aria-label=\"Interactive line chart\" id=\"datawrapper-chart-e1WkD\" frameborder=\"0\" height=\"456\" loading=\"lazy\" scrolling=\"no\" src=\"https:\/\/datawrapper.dwcdn.net\/e1WkD\/2\/\" style=\"border:none\" title=\"U.S. housing starts and completions are still lagging\" width=\"100%\"><\/iframe><\/p>\n<\/figure>\n<p>What\u2019s more, the critical home-renovation market, which boomed during the pandemic helping to lift lumber prices, is also showing signs of weakness. HomeDepot saw its U.S. comparable sales sink 3.2% in the first quarter, for example. One of the reasons for the drop was \u201csofter engagement in larger discretionary projects\u2026such as kitchen and bath remodels,\u201d Billy Bastek, the retailer\u2019s executive vice president of merchandising, noted on its May earnings call.<\/p>\n<p>Boeckholt, a veteran lumber trader who also hosts the weekly \u201c<a href=\"https:\/\/podcasts.apple.com\/us\/podcast\/the-lumber-word\/id1701995783\" target=\"_blank\" aria-label=\"Go to https:\/\/podcasts.apple.com\/us\/podcast\/the-lumber-word\/id1701995783\" rel=\"noopener\" class=\"sc-80b85506-0 pUpMT\">Lumber Word<\/a>\u201d podcast, said he is seeing evidence of declining lumber demand from retail buyers as well. Traders like him are starting to receive \u201cpremium\u201d lumber that is typically reserved for the Home Depots and Lowes of the world. \u201cThat generally means there&#8217;s pushback\u201d from retail buyers at home goods centers, he noted.<\/p>\n<p>This home renovation slowdown, when combined with the U.S.\u2019 long-running housing affordability challenges, has led to a serious lack of demand for wood products, particularly when compared to what was forecast just a year ago.<\/p>\n<h2 class=\"wp-block-heading\">The supply-side: A hope-driven \u2018bullwhip\u2019 effect<\/h2>\n<p>While the demand side of the lumber market is ailing, the supply side may be in an even worse position. After lumber prices surged in 2021 and 2022, the lumber industry responded by investing to increase production. Many lumber veterans saw a long-term opportunity for increased demand for their products due to the housing shortage; and like many Americans, they also anticipated imminent interest-rate cuts which tend to drive more near-term lumber demand.<\/p>\n<p>The only issue with this plan, as Fastmarkets\u2019 Jalbert explained, is that it takes years to create new sawmills and increase lumber supply. This means that a lot of the new lumber supply that was commissioned during the pandemic is just now coming to market\u2014at a time when added supply is the last thing the industry needs.\u00a0<\/p>\n<p>\u201cIt&#8217;s a classic bullwhip,\u201d Jalbert noted. \u201cThe supply side [responds] in a like manner to demand, and by the time it comes to the market that demand picture is already changed\u2014and in this case in a negative way.\u201d<\/p>\n<p>Boeckholt backed up Jalbet\u2019s argument, saying it\u2019s an example of the \u201changover\u201d the lumber market is experiencing after its highly profitable pandemic years led to too much \u201chope\u201d for more demand. That\u2019s especially true \u201cdown in the southern U.S., where there have been mills in a pipeline to build for three or four years that have finally been coming on over the last year,\u201d he said, adding that there was also a lot of investment into older mills to increase production in many regions nationwide.<\/p>\n<h2 class=\"wp-block-heading\">What to expect from lumber prices through year-end 2024<\/h2>\n<p>When it comes to what to expect for the rest of this year, Boeckholt warned that lumber prices may languish near their current, pre-pandemic levels, with the potential for a minor\u2014roughly $50\u2014price increase in the fourth quarter. \u201cThere was a lot of hope out there, so when we wash all that hope out\u2014which we will, eventually\u2014that&#8217;s when we&#8217;ll bottom,\u201d he said.\u00a0<\/p>\n<p>Jalbert also believes lumber prices will likely stagnate through year-end 2024, but in 2025, he argues things could turn around. Some sawmills will be forced to slow or shut down production due to depressed lumber prices in the second half of this year, lowering lumber supply\u2014\u201cthe bullwhip in the opposite direction.\u201d\u00a0<\/p>\n<p>That, coupled with interest rate cuts that could stoke lumber demand, will likely lead lumber futures prices to a range between $500 and $600, or slightly above pre-pandemic levels, according to Jalbert. \u201cSupply is going to be cut and demand will recover,\u201d he said. \u201cBut that&#8217;s going to take time.\u201d<\/p>\n<\/div>\n<p>[ad_2]<br \/>\n<br \/><a href=\"https:\/\/fortune.com\/2024\/06\/30\/lumber-prices-housing-post-pandemic-double-bubble-hangover\/\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>[ad_1] The twin-peaked lumber bubble of 2021 and 2022 that once drove home building costs through the roof and exacerbated inflation is now nothing more<\/p>\n","protected":false},"author":1,"featured_media":238165,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[149],"tags":[],"_links":{"self":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/posts\/238164"}],"collection":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/comments?post=238164"}],"version-history":[{"count":0,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/posts\/238164\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/media\/238165"}],"wp:attachment":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/media?parent=238164"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/categories?post=238164"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/tags?post=238164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}