Lumber futures for July delivery ended June 14 at $996.20 per thousand board feet, down 42% from the record of $1,711.20 reached in early May, according to The Wall Street Journal. At that time, futures had declined 14 of the past 15 trading days—the last two by the most allowed by exchange rules.
Cash lumber prices also are falling; pricing service Random Lengths said June 11 its framing composite index, which tracks on-the-spot sales, dropped $122 to $1,324—its biggest-ever weekly decline.
Economists and investors have been wondering whether soaring prices for wood products would be the downfall of the booming housing market. The rapid decline suggests a bubble has burst and now the question is how low lumber prices will fall. Even with the decline, lumber futures are nearly three times what is typical for this time of year. Lumber producers and traders expect prices to remain relatively high because of the strong housing market; however, they expect supply bottlenecks and all-time high prices to ease.
Wood has been hoarded by builders, retailers and others concerned about running out of material during a busy construction season. Now the market is being flooded by “shadow inventory” as businesses such as homebuilders and companies that prefabricate the trusses that hold up roofs and floors sell from their own stockpiles.
Lumber producers say prices should remain relatively high as homebuilders try to fix the country’s housing deficit. Mortgage-finance firm Freddie Mac estimated in April the U.S. is about 3.8 million houses shy of meeting demand, largely because of the lack of construction following the 2008 housing crash.
Analysts with BMO Capital Markets recently calculated the share prices of three Canadian firms that have become the biggest sawyers in the Southern pinelands have priced in expectations of $447 lumber next year, which would be slightly more expensive than usual but more aligned with historical prices.