Builders Find Some Relief As Lumber Drops 40% From Peak

There’s good news for builders, if not yet for homebuyers: Lumber prices have dropped more than 40% since peaking in May, as sawmills, which slowed production during the pandemic, ramp up to meet the demands of a frenzied housing market.   

On Monday, spot (or current) lumber prices dropped below $1,000 per thousand board feet for the first time since the end of March, and were last at about $996. The record high was $1,686 on May 7, pushed up by a construction boom that increased demand for lumber at the same time mills were operating below capacity. With the reopening of the economy, lumber producers are ratcheting up their output and investing in new production. 

The chart below shows how quickly lumber prices have dropped:

The decline in lumber prices couldn’t come at a better time. For months, lumber prices had been soaring and adding to the cost of a new home. Last month, the National Association of Homebuilders estimated the tripling of lumber prices over the last 12 months alone added $35,872 to the price of an average new single-family home. The high cost of materials took a bite out of housing starts in April from March, and last week, Fannie Mae said the number of people feeling like it was a good time to buy a house fell to the lowest level since at least 2010. Despite low mortgage rates, the rising prices of homes and lack of inventory discouraged buyers.

“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” said National Association of Home Builders Chairman Chuck Fowke in a statement on Tuesday, after a builder sentiment index dropped to the lowest level since August 2020. “These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building.”

But with lumber pausing from its breathtaking rally,  builders may be able to start new projects. Still, consumers shouldn’t expect a break in home prices anytime soon.

“Lumber prices certainly contribute to rapidly rising home prices, but they aren’t the only reason prices are up,” Ali Wolf, chief economist at Zonda, which provides housing market and real estate research, said in an email. Builders are still “grappling with land prices, government fees, a labor shortage, and rising building material costs.” So even as builders catch a break on lumber, she warned that “buyers should not expect home prices to come down as the lumber market stabilizes.”