Lumber Prices Have Crashed Over 60%, Home Builder Costs To Ease

It’s going down. I’m yelling timberrr. Bad joke, but good news for home construction costs, unless you’re a timber dealer. After more than tripling since 2020, lumber prices have crashed over 60% lower as of Tuesday. Surging lumber over the past two years helped drive construction costs tens of thousands of dollars higher. Now that they’re falling, they’re helping to reduce builder costs by tens of thousands.

Lumber Prices Have Dropped Over 50% In One Year

Lumber prices bounced recently, but it was minimal in contrast to the spiral lower. Lumber contracts closed at $640 per mbf on Tuesday, up 2.6% from a month before. Prices are still 50% lower than the same time last year though, even with absurd levels of inflation. As sharp as that drop is, it doesn’t fully capture how quickly prices have dropped.

Lumber Prices Are 62% Lower Than Peak

The spiral from the peak has been one of the sharpest pullbacks the commodity has seen in recent history. Prices peaked at $1686 per mbf in May 2021, and have since fallen 62% from those dizzying highs. Prices remain higher than they were pre-pandemic, but the level isn’t exactly unusual. Lumber traded higher in 2018, and we don’t recall the price of real estate being attributed to the surge in cost.

SPF Lumber Price

The closing price for SPF random length lumber.

Source: TradingView; Better Dwelling.

Home Construction Costs Will Fall, But It’s Unclear When

Lumber prices applied serious pressure to home building and renovation costs. From framing a home to building a deck, the cost directly influences housing. Compared to the start of this year, the price of lumber to build a single-family home should drop about US$19,000. Canadian home builders reported a similar surge in prices, and would likely experience a similar discount. There’s just one problem — they aren’t likely to see that discount until the end of summer.

When lumber prices were soaring many suppliers began to cut back on inventories. This helped prevent being stuck with overpriced inventory if they couldn’t sell. When prices looked like they’d never fall, users such as home builders began pre-buying inventories as a hedge against rising costs. When prices were rising, it worked in their favor helping to increase profits. Now the trend should be working in the opposite direction, making prices sticky on the way down.

Once old inventories begin to erode, costs should trickle lower. This shouldn’t be a surprise. Lumber executives have literally suggested delaying projects until prices come down this year.