After falling below post-pandemic lows last week, inflation-adjusted lumber prices are approaching all-time lows, 20 to 30 percent below production costs, according to Kyle Little, COO of Sherwood Lumber.
Prices for the most important building materials had a wild ride during the pandemic and afterward, rising to as high as $1,514 per thousand board feet in May 2021 as housing starts soared, then plummeted in 2022 and hit a low in early 2023.
There were signs of a recovery last year and earlier this year, but prices began falling again in March, most recently trading at around $450 on the Chicago Mercantile Exchange.
“We are extremely, extremely cheap compared to the past,” said Little CNBC on Friday“There is undoubtedly room for downward movement.”
In fact, prices have fallen below their early 2023 lows over the past week, but have then bounced back from those levels by about 3 to 4 percent, he added. “Perhaps we have started to see that this has finally capitulated and prices are ready to do something else.”
According to Little, who predicts a bear market rally, lumber prices will tend to be higher than other building materials and will be the first to decline and also the first to recover.
Lumber prices have fallen this year as construction activity remained subdued due to overall weak demand in the housing market.
Last month, housing starts data showed that new home construction fell 5.5% in May, hitting its lowest level since June 2020, when the pandemic roiled the housing sector. The number of building permits, an indicator of future construction, also fell as high interest rates dampened housing demand.
In the meantime Supply side of the equation has become even more unbalanced. After lumber prices soared in 2021 and 2022, the industry began investing to increase production. However, because it takes years to bring new sawmills online, much of the lumber supply ordered then is only now coming to market.
“It’s a classic bullwhip,” said Dustin Jalbert, a senior economist who leads Fastmarkets’ wood products team, Assets earlier. “The supply side [responds] in a similar way to demand, and by the time it comes to market, the demand picture has already changed – and in this case in a negative way.”