It\u2019s going down. I\u2019m yelling timberrr. Bad joke, but good news for home construction costs, unless you\u2019re a timber dealer. After more than tripling since 2020, lumber prices have crashed over 60% lower as of Tuesday. Surging lumber over the past two years helped drive construction costs tens of thousands of dollars higher. Now that they\u2019re falling, they\u2019re helping to reduce builder costs by tens of thousands. <\/p>\n\n\n\n
Lumber prices bounced recently, but it was minimal in contrast to the spiral lower. Lumber contracts closed at $640 per mbf on Tuesday, up 2.6% from a month before. Prices are still 50% lower than the same time last year though, even with absurd levels of inflation. As sharp as that drop is, it doesn\u2019t fully capture how quickly prices have dropped. <\/p>\n\n\n\n
The spiral from the peak has been one of the sharpest pullbacks the commodity has seen in recent history. Prices peaked at $1686 per mbf in May 2021, and have since fallen 62% from those dizzying highs. Prices remain higher than they were pre-pandemic, but the level isn\u2019t exactly unusual. Lumber traded higher in 2018, and we don\u2019t recall the price of real estate being attributed to the surge in cost.\u00a0<\/p>\n\n\n\n
Lumber prices applied serious pressure to home building and renovation costs. From framing a home to building a deck, the cost directly influences housing. Compared to the start of this year, the price of lumber to build a single-family home should drop about US$19,000.\u00a0Canadian home builders reported a similar surge in prices, and would likely experience a similar discount. There\u2019s just one problem \u2014 they aren\u2019t likely to see that discount until the end of summer.<\/p>\n\n\n\n
When lumber prices were soaring many suppliers began to cut back on inventories. This helped prevent being stuck with overpriced inventory if they couldn\u2019t sell. When prices looked like they\u2019d never fall, users such as home builders began pre-buying inventories as a hedge against rising costs. When prices were rising, it worked in their favor helping to increase profits. Now the trend should be working in the opposite direction, making prices sticky on the way down. <\/p>\n\n\n\n
Once old inventories begin to erode, costs should trickle lower. This shouldn\u2019t be a surprise.\u00a0Lumber executives have literally suggested delaying projects until prices come down this year.\u00a0<\/p>\n\n\n\n