Price of Lumber Plunges to Pre-Pandemic Level

If the chart of the weekly lumber futures price for the past two years was an EKG, the patient would be in need of a defibrillator, stat.

Lumber futures closed Monday at $410.80 per thousand board feet—which is back to where they started when the pandemic began. The cost of two-by-fours has plunged more than 70% from this year’s peak of more than $1,400 per 1K of board feet in March.

The collapse of lumber prices—actually the second collapse in two years—is seen as a leading indicator of a sharp slowdown in construction across the US, perhaps a harbinger of a recession to come. It’s also a solid sign that the Fed’s campaign of 75 bps rate increases is beginning to crimp inflation.

Wood-pricing service Random Lengths reported that its framing-lumber composite index, which tracks cash sales, fell last week to $529, down more than 60% since early March.

Random Lengths attributed this year’s first quarter surge in lumber prices to buyers hoarding wood to avoid supply-chain disruptions. With supplies easing and construction starts stalling as 30-year mortgage rates top 6%–the highest level since 2008—contractors are not feeling an intense urgency to stockpile wood.

“All of the urgency over the past two years—‘give me everything you can’—that’s basically over. Lumberyards are not scared of the price going up,” Michael Goodman, director of Melville, NY-based lumber wholesaler Sherwood Lumber Corp., told the Wall Street Journal.

Tracking back to the beginning of 2020, lumber prices have scaled twin peaks and gone into free-fall, twice.

Surging demand from the housing and remodeling boom in 2021—combined with supply-chain disruptions—lifted lumber prices to a stratospheric record of nearly $1,700 per 1K board feet during Q2 2021. This was followed by a crash that took prices down to $500 in less than a month.

Lumber prices surged again in Q1 2022, but they began another rapid retreat when the Fed began its campaign to raise the cost of debt in March.

Building permits for new housing plunged 10% in August from the revised July rate, which was down 14.4% from a year ago. A survey released last week reported that home builder confidence fell in September for the ninth-straight month to the lowest point since early 2020.

Last week, as the Fed delivered what it hopes will be a knockout blow to inflation—another 75 bps rate increase, with more on the way—Fed chief Jerome Powell went out of his way to finger housing prices as a prime culprit for the stubbornly high US inflation rate.

The Fed chair specifically called for “a correction” in US housing markets where he said home prices have spiraled to record heights at “an unsustainably fast level.”

“We’ve had a time of a red-hot housing market all over the country. The deceleration in housing prices that we’re seeing should help bring prices more in line with rents and other housing-market fundamentals, and that’s a good thing,” Powell said.

“For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and people can afford houses again,” he said. “So we probably in the housing market have to go through a correction to get back to that place.”