Columnists, Darren Satsky, V4I5

Lumber Demand Remains Strong

The September lumber futures market, a contract of SPF 2×4 #2 and better, found temporary support after months of leading the cash market lower. Sparked by concerns of wildfires in British Columbia and interior provinces, buyers replenished inventories to fulfill pressing needs. Prices rebounded and mills filled orders filed through mid to late September.

What’s next for lumber prices?

We still have historically high prices in spite of the current correction, the transportation crisis has not gone away, and consumer spending is lifting the economy. Enough factors are in play to create concern that prices may rise again. The theme of volatility or wide swings is consistent with what we have seen the past few years.

Economic Background

Demand for housing is still strong, but buyers are stepping back because of affordability constraints. Sales of new homes were lower in July than June, but still higher compared to 2017.

Sales of existing homes have been lower for five straight months. Mortgage applications to purchase a home have also fallen though still higher than last year. Sales of new homes are also falling.

Builders are still not building at historically normal levels. A normal level of single family starts is about 1.1 million. The current level is at 862,000.

July building permits for single-family homes, a measure of future activity, is at a rate of 869,000, a slight increase above June’s 854,000. Solid numbers, but still below normal and below most forecasters’ expectations.

July-August Lumber Prices

Prices for 2×4 standard and #2 prices, Western SPF, showed big declines over the period, dropping 17 percent. Eastern SPF was down about 12 percent. Meanwhile, Western and Eastern SPF studs matched the reversal in dimension lumber with both losing about 12 percent. Prices for 2×4 #2 SYP reversed course and lost 16% over the period. Treated SYP moved in line with the change in bright stock prices.

The Outlook

Consumers are in good shape financially. Homeowners have seen the value of their homes escalate in recent years and are putting a lot of money into their homes. The housing shortage will probably continue as builders struggle to ramp up production.

Lumber demand will remain strong due to an improving economy and strong labor market. The lumber supply chain will continue to play catch up and be prone to wild swings.

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