Months ago, experts warned about the lumber bubble. Now, it seems that the bubble popped, as prices of wood plummeted to their worst month on record since 1978. Lumber futures fell down by more than 40% in June alone.
As a result, the building commodity is down as well by 18% for the year. It now heads for its first negative first half in six years.
Lumber Bubble Pops, Price Crash Down
The price of lumber went wild earlier this year. At their peak two months ago, prices hit an all-time high of $1,670.50 per thousand board feet on a closing basis. This is six times more than what it cost during its pandemic low in April 2020.
After the meteoric rise in prices, a combination of increased supply reduced speculative trading, and lesser demand for home building caused prices to fall fast. As fast as it started, the short-lived lumber bubble is now history. Now, the price per thousand board feet is now at $710.
In particular, demand for lumber eased up as many Americans began leaving their homes for vacations. By going out of the house, many ditched the need for renovation and DIY building projects.
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With the economy reopening, more and more Americans are going back to work and traveling. This leaves them little time for woodworking projects that used to occupy their time during the lockdown periods.
Inflation Fears Cool Down Due To Declining Lumber Prices
In a way, the cooling-off of lumber prices also dampened fears of runaway inflation. “This drop suggests that the cause of that inflation—the mismatch of supply and demand—will not last forever,” said Brad McMillan, CIO at Commonwealth Financial Network. “As suppliers across industries get their acts together, those shortages will fade, along with inflation. That looks to be happening for lumber now and will happen for other inputs later,” he added.
In addition, Goldman Sachs analysts said there is an increasing hesitancy among DIY enthusiasts over raw material price increases, especially lumber. In fact, the lumber shortage increased the price of a new single-family home by $35,000.
Thankfully, the return of many sawmills back into action, plus the cooling off of the housing market due to high prices, is now pushing lumber back to more affordable levels.
After The Lumber Bubble, Is The Housing Bubble Next To Pop?
As more potential buyers are now backing off due to high prices, the housing boom is now showing signs of popping as well. Weekly mortgage demand fell to 6.9% last week. This is its lowest level since the start of 2020. At the same time, lumber futures prices are trending towards their sixth consecutive weekly loss. The gains from the rallies early this year are gone.
Watch the WTHR video featuring Consumer Catch-up: Lumber futures tumble:
Do you agree that lumber prices will now fall back to previous levels? In addition, do you agree that the lumber bubble is now over?
Let us know what you think. Share your thoughts about the price of lumber by commenting below!