• Lumber prices continued their downward trend on Thursday, falling 4% toward multi-year lows.

• The decline in lumber came amid an unexpected decline in March pending home sales, and as the industry seeks a balance in supply and demand.

• "The broad industry is still challenged with getting supply in check to meet the new demand curve," Sherwood Lumber told Insider.

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Lumber prices fell toward multi-year lows on Thursday, falling 4% to $382 per thousand board feet as the industry continues to seek a balance in supply and demand.

The decline on Thursday came after the pending home sales index unexpectedly declined 5.2% in March to 78.9, according to the National Association of Realtors. The index, which is based on signed contracts, fell to its lowest level since December. Economists were expecting an increase of 0.5%.

"The lack of housing inventory is a major constraint to rising sales. Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally," NAR chief economist Lawrence Yun said.

That means the housing market needs more supply to come online in the form of new homes, which should boost demand for lumber.

But according to Sherwood Lumber president Andy Goodman, the lumber industry is still searching for a balance in supply and demand.

"While there are pockets of hope, the broad industry is still challenged with getting supply in check to meet the new demand curve. The narrow trading range indicates that we are very close to equilibrium," Goodman told Insider on Thursday.

The trading range of lumber has consistently been between about $300 and $600, aside from the upside volatility boom that sent lumber prices soaring to as high as $1,733 per thousand board feet during the pandemic-induced housing boom. Since then, lumber prices have cratered 78%, in part driven by a surge in mortgage rates to above 6%.

"Lumber is trying to carve out it's new post-covid trading range after resetting to more historical price structure... Any supply disruption or shift in demand will only bring one constant, volatility," Goodman said. "The question we all would like to answer is, when?"

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