Lumber Prices Are Down But There Are Other Issues Afoot

Lumber prices have been dropping, and that’s good. But the trend is likely to come to a halt and even less expensive wood for framing isn’t close to the major cost of building.

“There’s more lumber available than the demand right now,” Mike Wisnefski, co-founder and CEO of digital wood product marketplace MaterialsXchange, tells GlobeSt.com. “We got caught in a cycle where prices were going up and hit a spot where people who had projects had to buy lumber out as far as they could. On May 10, the buyers bought far enough out, and they weren’t going to buy any more and the prices came tumbling down. Now the onus is on the supply side to right-size itself.”

Lumber futures are currently at $474.70, while cash prices have been around $500, although the latter can be deceptive. 

“My take on it is the cash market—pick up the phone and call a sawmill today—is still a discount to a mercantile exchange,” Chip Setzer, director of trading and growth at commodities platform Mickey Trading, tells GlobeSt.com. “That’s good and it’s bad. If you’re a manufacturer that needs to buy a bunch of 2x4s, life is pretty good. Your cost averaging is coming down. Whereas, if you’re an institutional buyer, you’re having a hard time cost averaging down.”

A local sawmill, which isn’t packed with older inventory, can probably deliver wood at a discount compared to a large home improvement center.

“The futures market has come down so quickly, it’s close to cash,” Setzer says. “When those two get close to each other, that’s when you’ll see the market go up again. He points out that some large lumber production facilities have been closing temporarily, waiting for prices to rise. “They don’t like their return on sending railcars. It’s not because they have too much demand.”

While attention is frequently on lumber, many other needed products are still scarce and expensive. “The price of LVL is still way up high because there’s not enough production to bring it down,” Setzer says. “There’s not enough production to meet demand, and a lot of these manufacturers have corporate partners, like distribution partners, that are on allocation because they’re so far behind on production. That won’t change. Overall, your total package for building a multifamily home is still going to be supply constrained and still going to have a handful of items that are going to be expensive.”

Planning is bigger than lumber prices. “You have to take the whole house package into consideration,” Wisnefski says.