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After stable stretch, lumber's roller coaster ride scales yet another hill

Tuesday, November 1, 2022   /   by Dave Magua

After stable stretch, lumber's roller coaster ride scales yet another hill

Homebuilders who have watched seesawing lumber prices plunge back to pre-pandemic levels were hit with a reminder in recent weeks that the market for this essential construction material can still be extremely volatile.

Lumber futures were trading at $454 per thousand board feet Monday after ascending to $539 per thousand board feet the week before, according to numbers tracked at Nasdaq.com. That’s a 16 percent drop following a similar-sized climb over a short span in late October. 

The jagged up-and-down movement in prices comes after markets appeared to be settling back to pre-pandemic levels in the low- to mid-$400s in late September and early October. Prices stayed there for weeks before the recent runup and fall.

Lumber futures, last six months

Credit: Nasdaq.com

The volatility in lumber prices remains a thorn in the side of homebuilders, who have had to sift through strained supply chains and bear wildly fluctuating prices just to obtain the needed material.

These strains were driven by the coronavirus pandemic, which simultaneously disrupted in-person work for weeks in 2020, and also drove a boom in desire for new homes amid historically low mortgage rates. 

As a result, supply chains for construction materials fell behind, and couldn’t keep up with the elevated demand.

But in more recent months, demand for newly constructed homes has fallen back to earth as mortgage rates have climbed back above 7 percent. 

That’s eased some pressure on supply chains. But construction materials remain expensive, and prices of certain goods like lumber have remained volatile, even after they plummeted from their pandemic-fueled heights.

Still, the latest ups and downs in lumber prices in October — while sharp — are a far cry from what builders have dealt with throughout the pandemic’s earlier stages.For much of the last three years, it was almost impossible to forecast the price of lumber — a real problem for builders who often make sales months in advance of a project’s completion.

Prices started near $400 per thousand board feet before the pandemic. About a year later, the same amount of lumber would cost nearly four times as much. And over the course of 2021 and 2022, the price zig-zagged downward and upward by hundreds of dollars in a matter of weeks.

Overall construction costs have been a bit more stable. But that means they’ve also remained much costlier than usual in recent months, even after lumber fell back to normal ranges.

The cost of goods used as inputs to residential construction were 38 percent higher in September than they were in February 2020, according to the U.S. Bureau of Labor Statistics. That’s down a bit since the measure of construction costs appeared to peak in June.

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