Lumber Prices Biggest-Ever Weekly Drop As Homebuilding Continues Demand

Lumber Futures has fallen consistently in the past week. Recently, over the weekend, lumber futures saw an 18% drop in most active futures. According to multiple publications such as Business Insider, Yahoo, and more –  Lumber futures has seen a consistent decrease in activity over the last eight days since peaking to an all-time high due to a drastic increase in market demand and unique economic conditions.

U.S. Lumber Prices Increases

Following the issues of how building a home became so unprofitable, many US contractors found a steep rise in cost for construction materials. The materials that go into residential construction rose the most since June according to the Bureau of Labor Statistics Producer Price Index. Lumber prices alone, shot up a steep 48% higher cost in the recent months. The production and fabrication became strained along with other types of materials which ultimately made building new homes for contractors not nearly as profitable as it was early this year. The increasing prices are dissuading contractors from building new homes, and people are holding off on selling their homes; this dynamic is starting to hold inventory back which in turn is driving a steep demand. 

Lumber Futures trading price falls, but material cost remains high

LB1:COM or Lumber Futures closed at $1,059.20 per 1,000 feet at price before the weekend. This comes in as a -5.6% decrease in price last Friday which contributed to an overall 18% decrease in price. Analysts have observed this drop to be the biggest weekly decline in the commodity’s price since 1986. However, just because the commodity has been decreasing over the last week doesn’t mean the material cost for lumber will be going down anytime soon. Sawmills seem to be catching up to the ramped-up demand following the months of steep rises in price and need. U.S. homebuilding is one of the reasons for increased demand following an awakening economy since COVID19. But with strong U.S. homebuilding expected for several more years, lumber prices should stay above $500 per 1,000 board feet for the next 5-8 years, says Scott Reaves of Domain Timber Advisors.

Homebuilders, Homebuyers, and Renovators Hit Hard By Rising Costs 

Rising lumber prices in 2021 have hit homebuilders, buyers, and renovators especially hard. The cost of an average single-family home build has been pushed up by a whopping $36,000 according to the National Association of Homebuidlers. While the commodity is still seeing prices over $1,000 even at the time of writing, some are claiming that prices are not likely to continue at such a high cost. Devin Stockfish, the CEO of Weyerhaeuser, one of the world’s largest private owners of timber, claims that lumber prices over $1,00 aren’t likely to continue. But it is important to note that due to the sudden reawakening in demand for home-building and remodeling here in the U.S. the strong demand for wood could continue throughout the decade. 

“I don’t think $1,000 lumber prices are the new normal,” Stockfish told the Nareit REITweek 2021 Investor Conference. “With that being said, when you think about the amount of housing we’re going to have to build in the U.S. over the next three, five, 10 years, that’s a significant amount of demand for wood products.”

Is it still a good time to build or renovate?

Despite the volatile pricing and hectic demand for materials, the industry still views this as an amazing time to build. Homeowners, builders, and renovators alike can find ways to keep costs down by working with a knowledgeable general contractor. Design-build companies can provide even more security through value engineering, which would oversee the construction details from the very beginning and find the most efficient way to build, remodel, or renovate a home. Despite the rising cost of materials in construction, there are still ways homeowners and builders can save by finding innovative ways to standard practices.