Since the beginning of the pandemic, lumber prices have been more volatile than at almost any other time in history, leading to some major headaches for homebuilders and buyers.
In fact, the volatile swings in lumber over the past year alone have pushed the average price of a new single-family home up more than $18,600, according to the National Association of Homebuilders.
Over the past three months, however, with interest rates rising and the housing market cooling, demand for lumber is falling—and so are prices.
Lumber futures are down over 50% since this year’s January peak of $1,329 per thousand board feet to $651 on Wednesday.
But before we jump into where lumber prices are headed, it’s important to look back over the past two years to see how the market got to where it is today.
The two lumber bubbles of the pandemic era
There have been two major spikes in lumber prices since 2020. The first began when COVID-19 lockdowns caused the market’s suppliers to anticipate a slowdown in demand, leading sawmills to furlough staff and reduce production.
By April 2020, U.S. wood production had fallen 15% from 2019’s levels.
The move by mills was a logical one at the time, but record fiscal and monetary stimulus, a home renovation boom, and historically low mortgage rates ended up spurring demand for homebuilding and, consequently, for lumber.
Falling supply and rising demand led lumber prices to soar over 300% from pre-pandemic levels through May 2021.
“From 2020 to the first half of 2021, it really was an issue of production at the mill,” Dustin Jalbert, a senior economist who leads Fastmarkets RISI's lumber team, told Fortune. “There just wasn’t enough sawmill output, not enough wood products output, to meet demand.”
Of course, the historic rise wasn’t sustainable. Record lumber prices crushed builders’ and remodelers’ budgets, and eventually, the lumber bubble popped as buyers began to balk and seek alternatives.
“The culprit [of the correction] was the demand side,” Stinson Dean, CEO of Deacon Lumber, told Fortune’s Lance Lambert in September 2021. Homebuilders saw the “full brunt” of rising lumber prices “and completely hit the brakes.”
Lumber price relief proved to be short-lived, however. Supply-chain woes, exacerbated by high labor costs and flooding in lumber-producing British Columbia, kicked off a second wave of price increases through March of this year.
“I would say that this latest run…has been largely a crisis of shipping and logistics,” Jalbert said, “You had this kind of one-two-three punch of flooding in B.C. [British Columbia], a COVID wave, and then on top of that, we hit a seasonally slow period for shipping anyway.”