The exorbitant price of lumber has homebuilders and DIY-ers alike choosing between going over budget or putting their projects on hold. Increasingly, builders are choosing the latter.
But perhaps they won’t have to delay their projects for too long: There are signs that the worst of the 2021 lumber crunch may be over. On Tuesday, the July futures contract price per thousand board feet of two-by-fours fell $63 to $1,264. Since peaking at over $1,700 last week, lumber futures have notched seven straight trading days of price declines.
“We went to levels previously unimaginable, and this futures pullback will give buyers room to pause here and should lead to a bit more toned-down and rational pricing environment,” Steve Loebner, director of risk management at Sherwood Lumber, told Fortune. “I feel the extreme craziness is in the rearview mirror at this point.”
Still, while Loebner believes the “recent bubble has burst,” he doesn’t foresee a return to normal. Instead, he expects the commodity to trade above historic norms for the foreseeable future. Why? Lumber supply is still too constrained to match demand. That’s the same dynamic that caused the huge spikes in the first place.
From the onset of the pandemic, sawmills fell behind as they halted production and unloaded inventory in fears of a looming housing crash. The crash didn’t happen—instead, the opposite occurred. Bored, quarantining Americans rushed to Home Depot and Lowe’s to buy up materials for do-it-yourself projects, while recession-induced interest rates helped spur a housing boom. That boom, which was exacerbated by the largest cohort of millennials starting to hit their peak homebuying years, dried up housing inventory and sent buyers in search of new construction. Home improvements and construction require a lot of lumber, and mills couldn’t keep up. Cue record prices.
On Tuesday we learned that new housing starts in April fell 9% from the 15-year high set in March. That slight demand pullback is helping to drag down lumber futures from last week’s peak. However, that level of building is still up 22% from April 2019 and 67% from April 2020 (the bottom of the economic crisis). So even given that decreased level of building activity in April, sawmills still don’t have the capacity to match demand.
And don’t expect to see a big markdown in the Home Depot aisles quite yet. While the futures price of lumber has fallen off all-time highs, the retail price has not. As of Monday, the retail price per thousand board feet of lumber is at $1,495, according to industry trade publication Random Lengths. That’s up a staggering 318% since April 2020.
“The physical market has not shifted with futures, as mills maintain solid order files well out into June,” Shawn Church, editor at Random Lengths, tells Fortune. “The drop in futures has changed the tone a bit, and buyers are showing caution. But many still need coverage, and mills won’t break on prices until those files come in closer.”
That retail price of lumber—what we pay at Lowe’s or Home Depot—could soon dip too. Just don’t expect a huge discount.
“I think we are hopefully done testing new highs. I don’t see prices coming crashing down though,” Trevor Robins, who works in lumber sales at Builders FirstSource, tells Fortune. The price per thousand board feet of lumber, he expects, will continue to trade above $1,000 for much of this year. Over time he foresees prices correcting more, however, and says he’d be surprised if prices ever make it down into the $300 to $400 range again.
