Lumber prices have tumbled over 20% in March, but homebuyers shouldn’t celebrate just yet

After surging to highs of $1,357 per thousand board feet earlier this month due to Russia’s invasion of Ukraine, the price of lumber has fallen more than 20% in recent weeks to near $1,000.

But homebuyers shouldn’t celebrate just yet. 

Lumber prices are still up more than 135% since the beginning of 2020, and volatile lumber price swings over the past year have pushed the average price of a new single-family home up by more than $18,000, National Home Builders Association data shows.

And with experts predicting gas prices will move to an average of $5 nationwide this summer, lumber may continue to trade at elevated levels in the near term as industry suppliers struggle to cope with rising costs.

“Our fuel costs, the cost just to ship these logs and lumber across the country and across the state, you know, it’s gone up and it hurts,” lumber buyer Theron Gibbs told WCHS, a local ABC/FOX affiliate in West Virginia.

Elevated short-term prices, long-term relief

Elevated lumber prices have created headaches for homebuilders since the start of the pandemic, and that trickles down to housing prices, but some of the largest builders in the country are predicting lumber price relief is on the horizon.

The second-largest homebuilder in America, Lennar, revealed in a March 17 earnings call that rising lumber prices have accounted for roughly 60% of their year-over-year cost increases. 

The company didn’t have great news for homebuyers despite lumber’s dramatic 20% fall. “Further increases are anticipated as lumber futures indicate short-term inflation through the spring cycle or into early summer,” CEO Jon Jaffe said.

Based on Lennar’s analysis and on feedback from major lumber industry participants, he said the company believes lumber price “deflation” will eventually follow.

Rising mortgage rates should also help to cool the red-hot U.S. housing market, but neither that nor Jaffe’s guidance offers much hope for the near term.

Ali Wolf, chief economist at the housing market research firm Zonda, told Fortune this week that, thus far, rising rates are having an unexpected effect on demand, spurring buyers into action.  

“Some home shoppers are nervous that if they don’t buy today, they may never be able to given affordability,” Wolf told Fortune on Wednesday.

This short-term increase in homebuyer urgency is another factor that could contribute to elevated home prices in the near term, but rising rates should put pressure on the market in the coming months—and coupled with lumber’s expected decline, relief for homebuyers may be on its way.

Still, despite lumber’s recent decline from near-record highs, homebuyers have yet to see any significant benefit, and many housing market experts are predicting home prices will continue to rise through 2022.

Bank of America expects U.S. home prices will finish the year up 10%, and Fannie Mae is expecting prices to climb 11.2% to a national average of $384,000 by December.