Lumber has been way more expensive and harder to find over the past months as the lumber market continued to exhibit extreme imbalances.
When the coronavirus/COVID-19 pandemic started, lumber prices sank to new lows, construction activity halted, and mills had excess supply. In recent months, building has resumed with a bang, and mills were not prepared for the pent-up demand.
Lumber prices spiked higher as traders experienced uncertain lumber supplies amid an economy trying to quickly rebound from a recession.
ECONOMIC FACTORS
The Federal Reserve Bank has kept interest rates near zero to mitigate the adverse effects of the economic recession. Economists and builders expect building and construction to lead the United States out of recession later in 2020.
Furthermore, pent-up demand for new and existing housing remained a top priority. New Housing Starts were a positive data point in July with starts up over 22 percent.
Many builders were starting more homes for the middle market segment to meet the demand. The problem was that their lumber costs were rising dramatically.
LUMBER PRICES
Unrelenting demand and insufficient supplies at mills and the distribution system drove prices higher by the end of August.
SYP#2 prices were more than 35 percent higher in the last three weeks ending August 14. Canadian Western and Eastern SPF #2 and better prices gained almost $200 per thousand board feet in the same period. Premium grades in all species sold well above #2 prices.
Studs prices increased more than 25 percent following strong demand from home centers and do-it-yourselfers.
STRATEGY
While most lumber prices looked insanely expensive at current levels, the turmoil and volatility about future supplies will continue to complicate buying decisions.
Lumber traders have predicted that the supply chain could be stretched for the remainder of the year, sustaining already high prices. This was confirmed as mill order files extended into mid-late October.
Housing affordability likely will be called into question as lumber costs have skyrocketed. However, low interest rates and possibly more fiscal stimulus will likely keep market participants bullish.