What is causing the decline?
Soaring demand as homeowners barred from leaving their houses due to pandemic restrictions embarked on renovation projects, coupled by reduced supply as COVID-19-impacted mills shut down operations, pushed lumber prices to unprecedented highs earlier this year.
But with the economy reopening, Americans began allocating the money they would otherwise have spent on home upgrades to travel. Homebuilders, meanwhile, started to delay projects partly to keep hold of their inventory of building materials, cooling demand further. This came as sawmills across the country started resuming operations, ramping up lumber supply.
“There was plenty of lumber available from the mills and enough ambition to sell,” wrote William Giguere, trader for Sherwood Lumber in Massachusetts, in a note obtained by BNN Bloomberg. “Missing was the sense of urgency from buyers.”
Hamir Patel, analyst at Canadian Imperial Bank of Commerce, also told BNN Bloomberg that many buyers were only purchasing if necessary, “generally staying on the sidelines.” He cited an assessment from Oregon-based trade publication Random Lengths, which pointed to “an abundance of mill offerings” as causing the “declines in several wood products that trade on the cash market.”
How does falling lumber prices impact the housing market?
At their peak, lumber prices hiked up the price of a single-family home by $35,875, according to a recent analysis by the National Association of Home Builders (NAHB). Soaring lumber prices also added almost $13,000 to the market value of a multifamily home, which translated to an additional $119 in monthly rent for a new apartment.