Promising Lumber Prices
Aside from lumberjacks, commodity traders and building contractors the price of lumber rarely comes to mind. Lately, the issue of soaring prices has become the headline of the day. Major television, radio, and other media outlets have run stories and have been making the rounds concerning this issue. To understand how the industry got to this place, it is important to break down how this log jam occurred and what the future will look like for lumber.
During the COVID shut downs all kinds of very fascinating trends took off. People used the opportunity to pursue hobbies and lifestyle changes such as gardening, bread baking, and of course new home construction. Trinity Estate Homes saw a direct coloration with the amount of homes being contracted from a year over year perspective.
The price of finished lumber trades as a commodity like crude oil and gasoline. Crude oil and timber remained in plentiful supply. As opposed to oil refineries, many lumber mills liquidated their inventories and some even shuttered temporarily anticipating a drop in demand. So even though the trees were available, the mill capacity was not.
For oil and gas, the experts were correct. The demand dropped precipitously as well as the price because people had no where to go. Tankers full of crude oil lingered at sea waiting to to be bought up and refined. Conversely the lumber industry experts got it wrong. Instead of ramping up capacity, they liquidated their inventories and started praying.
What happened next was not anticipated. Responding to very dire recessionary pressure, the federal reserve dropped interest rates to record lows. Many people who were sitting on the fence decided to get building. The glut in demand from first time homebuyers, to people refinancing for remodels and all the new home builds have all decided to pull the trigger simultaneously!
Unlike oil and gas, the finished lumber industry never had a chance. The unanticipated roaring demand quickly overloaded the scaled back mill capacity. Then, even with all hands on deck, the demand continued to swell beyond our existing mill capacity all together. Since new mills take about two years to build, everyone has been forced to reevaluate either spending more or posting projects.
There is good news for those hoping to build and remodel. Industry experts say lumber futures are starting to peak and decline. Many of us are familiar when the price of crude changes, as it is frequently discussed in media news casts. Just as The the price for a barrel of oil quickly changes the prices at the local gas stations, so do lumber futures. While higher prices could remain for a while, equilibrium is beginning to emerge as many people delay projects and lumber mills are quickly ramping up their production volumes. There is light at the end of the tunnel, and these prices may come down in the summer.