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Lumber prices have risen in a manner similar of a year ago, when high-climbing wood prices foreshadowed shaky supply lines and widespread inflation.
Futures for January delivery closed Friday at $1,089.10 per thousand board feet, more than double the price for a mid-November delivery.
Cash costs are also rising. Random Lengths, a pricing service, said that their frame composite index, which analyzes on-the-spot transactions, had risen 65 percent to $915 since October. This week’s increase of $129 was the most on record, surpassing a $124 gain in May, when lumber prices reached all-time highs.
Two-by-fours became a proxy in the discussion about whether inflation would diminish with distance from the lockdown, despite the fact that timber is traded in specialized markets. In June, Federal Reserve Chairman Jerome Powell cited the drop in lumber prices from a record high as proof that rising costs will level out. He said on Wednesday that the central bank will accelerate the end of its bond-buying program, paving the way for a series of interest-rate rises aimed at taming inflation.
Lumber prices have a long way to go before they challenge the $1,711.20 highs recorded in the spring. Still, before the shutdown, comma-separated lumber prices were unthinkable, since mills were taken off surprise by do-it-yourself and home-building booms, as well as all the decks required for outdoor dining.
Analysts and merchants predict that prices will continue to rise over the winter, as they usually do ahead of the spring construction season.
Flooding in British Columbia has cut sawmills off from forests and clients, while unusually mild fall weather has prolonged the construction season, and wood purchasers are stocking up in anticipation of future price hikes and supply issues.
After rainstorms pounded British Columbia last month, the Trans-Canada highway was inundated.
JENNIFER GAUTHIER/REUTERS/JENNIFER GAUTHIER/REUTERS/JENNIFER GAUTHIER/
The possibility of increased interest rates cooling the sweltering property market looms as well. Buyers’ capacity to keep up with price rises utilized by builders to offset their own increasing expenses will be harmed by higher borrowing charges. The majority of Fed officials expect at least three quarter-point rate hikes next year.
“Builders believe they are approaching the conclusion of a cycle and are doing all they can to get homes moving,” said Matt Layman, an analyst and consultant who publishes Layman’s Lumber Guide. “They know they can get two-by-fours for $1,500.” It didn’t sit well with them, but it didn’t harm them.”
According to Random Lengths, demand has outpaced supply, causing sawmills to boost prices aggressively in the hopes of reducing orders that are backloging into the new year. “Some producers who were unable to persuade buyers with defensive pricing walked away from the market,” according to the trade newspaper.
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Since storms washed away roads and railroads in British Columbia last month, sawmills have restricted production, driving up prices for spruce, pine, and fir in the northwest. Busy builders hammering away in the warm autumn weather rushed to eastern markets for wood, causing prices to rise throughout the Great Lakes and in the South.
According to a recent study of building-product merchants conducted by John Burns Real Estate Consulting, 20% of respondents stated they had surplus lumber inventory, down from 56% who said they had more than enough in August.
Due to the unprecedented amount of home equity available to pay for new kitchens and expansions, the business forecasts house development to increase in 2022, with high growth in large renovation work.
Todd Tomalak, who monitors construction supplies for the consulting business, said, “They should be sitting on more inventory.” “It’s the ideal storm for another round of building-material shortages, a rinse and repeat in lumber and a variety of other products.”
The National Association of Home Builders said on Wednesday that its measure of builder optimism has reached one of its most bullish levels since 1985, although being down slightly from last autumn’s peak exuberance. According to the Commerce Department, 1.679 million dwellings were begun on a seasonally adjusted annual rate last month. This is the highest level since March, up 12 percent from October.
The number of houses that were begun outnumbering those that were finished for the first time since 1984, when double-digit mortgage rates sank the housing industry. The large disparity reflects the difficulties that builders have had obtaining the materials, appliances, and fixtures required to complete dwellings.
Because ultralow mortgage rates have made monthly payments inexpensive, builders have had little issue boosting prices to offset their own rising expenses. Despite record timber and other material costs, house builders have reported some of their biggest profit margins in history.
Builders such as Toll Brothers Inc., Lennar Corp., and Hovnanian Enterprises Inc. say they are still working through the lumber acquired when prices peaked in the spring, and that margins will improve later next year when they sell homes constructed with wood purchased after prices fell this summer. During recent investor calls, executives from those companies expressed confidence that if lumber costs rise again, they would be able to boost house prices even higher.
“The market really seems incredibly robust in terms of pricing potential,” said Ara Hovnanian, CEO of his namesake business, which sold houses for an average price of $445,000 in the fiscal year that ended Oct. 31, compared to $419,000 a year earlier.
During the epidemic, demand for timber soared, pushing prices to all-time highs. This video outlines what’s fueling the timber boom, who’s earning, and why the people who plant the trees aren’t benefiting. Liz Ornitz/WSJ illustration
Ryan Dezember can be reached at [email protected]
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