Lumber prices splinter amid rising interest rates

Commodity’s cost rollercoaster reaches lowest level in two years

(Photo Illustration by The Real Deal with Getty Images)
(Photo Illustration by The Real Deal with Getty Images)

One of the most volatile commodity markets of the pandemic is sounding a similar note to yesteryear.

Lumber prices are at their lowest level in more than two years, the Wall Street Journal reported. Futures ended Monday at $411 per thousand board feet, down more than 70 percent from the peak six months ago.

Wood prices have been tumultuous since the onset of the pandemic. Prices collapsed as everything in the world slowed to a halt, but by that summer, the commodity surged alongside home sales and remodels. Builders and developers prayed for a drop in commodity prices, as they were troubled by the tailwinds of labor shortages and supply chain snags.

As home sales have declined, the need for lumber has lessened across the wooden board, bringing down prices and bringing back some signals of stability for the commodity.

“The sexy lumber world is coming to an end, unfortunately,” Michael Goodman, director of specialty products at Sherwood Lumber, told the outlet.

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Lumber prices often track with the activity and sentiment of builders, although there are more factors involved.

Housing starts are down 13 percent from their decade-high peak in April, according to the Census Bureau. It’s better for builders when lumber prices are down, as they seemingly are now, but higher mortgage rates are leading to a slowdown in the housing market, creating less interest in new projects.

Builder sentiment, meanwhile, has been steadily dropping for nine months, reaching its lowest levels since the initial lockdown and even the 2008 housing crisis.

Forest Economic Advisors told the Journal it sees the recent downturn in the lumber market as a potential sign of things to come. The firm forecast a 2.5 percent decline in consumption this year and up to 4.5 percent in 2023. Because of rising mill costs and low dealer inventory, however, prices are expected to remain higher than in previous downturns.

— Holden Walter-Warner