The Summer of Lumber Price Uncertainty and Confusion Continues

How things change, and fast. Back in March, wood prices were high, hitting $1,464. By the end of April, things were a lot less clear given “so many extenuating factors going on,” Mike Wisnefski, CEO of MaterialsXchange told GlobeSt.com at the time. Prices had dropped to $874 and then rose to break $1,000 again.

Now? The spot market closed at under $700 on May 27, according to data from Nasdaq and was at $679 at one point on Tuesday, according to Insider. What’s going on is likely a combination of factors. One is the economics of markets.

“Historically speaking, lumber prices are elevated, trading at more than two times the 20-year median price,” Josh Goodman, vice president of inventory and purchasing at Sherwood Lumber, tells GlobeSt.com. “We believe that they will trade above long-term averages for the balance of the year.  However, in the short term, lumber is down more than 50% from the most recent peak.  The market is trying to determine where the new price equilibrium compared to slowing demand and increased supply.” There are too many unknowns—stability of the world economy, housing starts backlogs because of slow completions, and strong building permits. “The lumber market will become oversold and under inventoried eventually which points to a significant seasonal rally mid-year to help fill the large backlog that persists now and into the end of the year.”

However, other factors have intruded as well. A slowdown in new residential sales, according to Census Bureau data, saw the number of houses sold back to a pre-Covid level. Federal Reserve interest hikes have helped drive up mortgage rates and construction loans. It’s costlier to build and buy new houses, with a median price of $450,600 and average sales price, $570,300. The differential means the data was heavily top weighted by consumers who are far less price sensitive. Even so, the median price is staggeringly high for most families, given a median household income in 2019 (before the pandemic disruption) of $69,560.

“I think everything happening at the same time that points to a bearish result,” Michael Wisnefski, CEO of MaterialsXchange, tells GlobeSt.com. “Transportation has loosened up; product is moving. Lumber never really had a production issue. Where they did have an issue was moving the product from the production facility to the market.” There was also “ghost inventory” throughout the supply chain kept outside of traditional lumber storage facilities by developers, builders, and distributors that wanted access. “I know people who were putting wood in empty farm barns, and it doesn’t take a lot of excess inventory in the system to make it go higher,” Wisnefski adds.

Now ghost inventors are getting drawn down, transportation is improved, and demand has dropped some. So, the price has come down—at least for now.