Why homebuyers aren’t saving money from falling lumber prices

A contractor works on the roof of a house under construction in the Stillpointe subdivision in Sumter, South Carolina on Tuesday, July 6, 2021.

Micah Green | Bloomberg | Getty Images

The price of lumber in the futures market has given up all of its gains this year, falling more than 50% in the last few months alone. However, home builders, buyers and homeowners looking to renovate are not yet seeing the savings.

Lumber prices hit a record high on May 7 at $ 1,670.50 per thousand board feet at the close. It was more than six times their lowest level of the coronavirus pandemic in April of last year.

The spike was due to a sudden increase in demand and low supply, both due to the pandemic. Sawmills closed early and did not ramp up production quickly enough to meet new demand from builders and renovators. Buyers and owners wanted more space, which meant more lumber.

Now the demand for home improvement is dropping as people spend more money on vacations. Home builders are still in high demand, but they have slowed construction due to high costs. Sawmills have started up again, but many are struggling to find enough labor.

Falling lumber prices are a welcome sign, but not yet a reality on the retail side. Lumber prices are also still up almost 100% from the spring of last year.

“As the price cuts began to grab headlines, the price of lumber packaging offered to builders reached record levels,” wrote David Logan, senior economist at the National Association of Home Builders. “In economic jargon, the prices paid by builders – or ‘street’ prices – were ‘sticky’. This dynamic is mainly due to the costs of holding dealer inventory and the potentially large differences between the price at which inventory is bought and sold. “

The price of lumber packages offered to home builders is still at an all time high, according to Logan. Retailers of course want to buy their product low and sell high, so they always sell the inventory they have at higher prices, despite what the futures market says. Also, given the surge in demand and supply chain issues, their stock is low anyway and there is always demand, so they have no reason to lower prices. But that will change in the coming months.

“We’re still in a price discovery mode,” said Michael Goodman, director of specialty products at Sherwood Lumber, a national wholesaler and distributor in Palmer, Massachusetts. Sherwood sources from factories in North America and Europe and ships directly to its customers.

Goodman said they’ve just seen a lot more products hit the market.

“Everyone will try to hold on as long as they can, but the market will find its way. Maybe ultimately the price is higher because of inflation, but we are definitely in. a real estate boom now. It’s not. It doesn’t seem to be going away, “Goodman said.

As the price of lumber is falling, the price of other wood products, such as oriented strand board (OSB), which is a type of engineered wood product used for panels, is rising. 325% year-on-year increase and 500% year-on-year increase. pandemic levels, due to supply chain issues.

Steel mill products, used as inputs in steel building materials, have jumped about 70% in the first months of 2021 and have yet to stabilize.

“Builders are grappling with shortages of building materials, building land and skilled labor, as well as a difficult regulatory environment. This puts upward pressure on home prices and sidelines many potential buyers, even as demand remains strong in an environment of low inventories. Said Robert Dietz, chief economist of the NAHB.

– Lisa Rizzolo of CNBC contributed to this article.

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