Lumber Prices Should Have Their Own Storm Advisory

The winter solstice is an occasion for many old religions, in one form or another, on the longest night of the year to be thankful for the promise of lengthening days.

For commercial real estate, the only promise lumber offers going into 2022 is potentially high prices with a high dash of volatility.

Although recently dropping, lumber futures are still over $1,000 per thousand board feet—well more than double where prices sat before the pandemic. Multiple issues are keeping the future uncertain and a likelihood of volatility as supply and demand battle to establish an equilibrium.

“This year’s elevated lumber prices and continued volatility are being sustained by significant demand and supply chain constraints,” Scott Reaves, director of forest operations at Domain Timber Advisors, tells GlobeSt.com. “We believe population dynamics, an aging housing base, and historically low interest rates point to increased demand for new housing starts and home renovations in the immediate future. To that end, the housing market has typically served as one of the largest consumers of end-use wood products and remains a key driver of raw materials demand.”

According to Reaves, higher demand “should bring the timber market closer to an equilibrium point, moving away from the oversupplied state of the past several years” with eventual stabilized lumber prices, but “at an elevated level when compared to historical averages.”

Labor is another issue. “I talked to a sawmill today. If they could hire 120 qualified people, they’d put on another shift,” says Mike Wisnefski, CEO of lumber digital marketplace MaterialsXchange. “But they can’t. I think we’re going to see prices run to a point where the marginal buyer pauses and waits.” Then comes a see-saw period. Prices will drop, projects will come back online again, then with increased demand prices will rise. This could oscillate for some time as markets.

In other words, if you were expecting sharp drop-off in pricing to help bolster project profitability, you are likely to face disappointment. “We will continue to see similar price/market trends for lumber in Q1 and Q2 2022 as we saw in Q4 2021,” Chip Setzer, Mickey’s director of trading and growth, tells GlobeSt.com. “Construction will continue as much as the weather will hold out in many parts of the US and as such, we are still experiencing an undersupplied construction market — which has had little to no adjustments in core components of building materials. With many building supplies, including lumber, still in high-demand and federal interest rates continuing to be favorable, we anticipate that lumber will continue to be a sought-after commodity and prices will hover above a normal price range.”

Wisnefski sees a temporary holding pattern through mid-January. If prices remain high until then, they could kick up and “could go much higher because people won’t be able to hold off.”

And to make things more complicated, Canada is challenging duties on softwood lumber under the USMCA trade deal, as Reuters reported.

Don’t dump that Christmas tree yet. Maybe you’ll be lucky, and Santa will bring you a lumber milling tool.