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Why lumber prices are suddenly rising again

September 27, 2021, 5:30 PM UTC

A month after lumber prices finally returned to normal, prices for wood are ticking up once again—and analysts predict more price hikes are on the way.

The lumber bubble was created by a perfect storm on both the demand side—a housing and DIY boom—and the supply side—sawmills slowing production during the shutdowns. But once the price reached 300% above its pre-pandemic level this spring, buyers finally walked away and the bubble popped.

After peaking in late May at $1,515 per thousand board feet, the wholesale or “cash” market price of lumber fell for 13 consecutive weeks. By August 27, the price sat at $389—down 74% from its peak. That put the price firmly back in its pre-COVID range of $350 to $500.

But it seems lumber buyers are out of the, ahem, woods just yet: Since bottoming out in August, the price of lumber has climbed 21% to $469 as of Friday, according to data from Fastmarkets Random Lengths. Industry insiders tell Fortune the market has turned, and more hikes are on the way. What’s going on?

Seeing prices fall week-after-week in the aisles of big boxes like Home Depot and Lowe’s, do-it-yourselfers held-off on buying wood. But now that markdowns have stopped, DIYers are rushing back in. This resurgence is only getting started: Among U.S. adults who delayed a home project this year due to high lumber prices, 65% say they’re planning to restart it soon now that prices are back down, according to a recent Expertise.com survey.

That’s not all on the demand side. In March, housing starts climbed to 1.73 million—the highest level since 2006. But under the weight of soaring material costs, builders backed off a bit. This summer, housing starts were down about 10% from their height in March. But with material prices coming down—and the housing market still strong—building is picking up again. In August, housing starts climbed back above 1.6 million.

While both new construction and home improvement spending are still below their spring levels, they’re still far above their pre-pandemic levels. And if they continue to swing back up, it will undoubtedly put more upward pressure on wood prices, as it did before.

There are also developments on the supply side. Amid a bad wildfire season in Northwest states and British Columbia—the epicenter of North American lumber—sawmills began curtailing production this summer. Many of those curtailments are still ongoing.

“I think there will be a pretty good bounce from current levels in the cash market, not quite double though. But it’s hard to say how high it will go,” Dustin Jalbert, a senior economist at Fastmarkets RISI, where he covers the lumber market, told Fortune earlier this month.

Traders are already betting that lumber prices will go higher. On Friday, the futures price for November delivery climbed to $643, or 37% above the current cash market price of $469. That gap is the widest difference between the futures price and the cash market price that Fortune could find going back to 2017.

The difference in the futures and cash market clearly indicates traders think prices will go north, however, some of it could be a result of homebuilders and suppliers alike using the futures market to hedge against price fluctuations. Stinson Dean, CEO of Deacon Lumber, tells Fortune that “at this point, almost everyone has bought [for the fall].” Simply put, demand for futures is higher because wholesale buyers don’t want to get caught on the wrong side of another lumber run.

While lumber prices are rising again, industry insiders say another spring 2021-type run is unlikely. Although elevated demand will likely raise prices somewhat, most of the supply shock from the lockdowns has already worked its way through the system.

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