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‘Pure panic’: Lumber prices up a staggering 280% as builders scramble for supply

Fortune logo Fortune 5/5/2021 Lance Lambert
chart, histogram: Lumber Price Chart © Provided by Fortune Lumber Price Chart

The lumber shortage is getting worse.

On Tuesday, the price per thousand board feet of lumber soared to an all-time high of $1,359, according to Random Lengths. Since the onset of the pandemic, the price of lumber has skyrocketed 280%.

For weeks, Fortune has relayed a similar message to readers: The price of lumber is likely to continue posting new all-time highs this spring. To the ire of home builders and DIYers alike, that prediction continues to be right. And signs point to this all-time high soon getting topped too. On Tuesday, the July futures contract price per thousand board feet of two-by-fours jumped $63 to $1,481. That squeeze is a result of home builders scrambling to get lumber for upcoming summer projects they already have on the books.

"The fact is that we are in the midst of a global supply shortage for all forest products, and pure panic is accelerating the pace of demand. Additional supply cannot and will not be added fast enough to allow for sustained price deceleration in the coming year," Kyle Little, COO of Sherwood Lumber, told Fortune on Tuesday.

chart, histogram © Provided by Fortune

This unprecedented mismatch in lumber supply and demand was ushered in by the pandemic. During the early days of the crisis, sawmills halted production and unloaded inventory. At the same time, bored quarantining Americans rushed to [hotlink]Home Depot[/hotlink] and Lowe’s to buy up materials for do-it-yourself projects. But before sawmills could respond to that uptick in demand, another demand spike took place: Recession-induced, record-low interest rates helped spur a housing boom. That boom, which is exacerbated by the largest cohort of millennials starting to hit their peak home buying years, is drying up existing home inventory and sending buyers in search of new construction. As of March, new housing starts are at its highest level since 2006. And those new homes require lots of softwood lumber.

Why can't sawmills—enticed by sky-high prices—just start producing more? Well, lumber producers only have so much capacity—and increasing it requires both time and confidence that future sales will remain high. That means the best chance for lumber prices, Little says, to correct in the short-term would have to come from slowing demand. However, despite all-time high lumber prices, neither home construction nor home renovations have showed signs of slowing.

So for demand to finally slow, lumber prices might need to go even higher.

chart, histogram: This image has an empty alt attribute; its file name is Yb8JN-u-s-housing-starts-1.png © Provided by Fortune This image has an empty alt attribute; its file name is Yb8JN-u-s-housing-starts-1.png

"We are now in month No. 10 of what we believe to be an 18 to 24 month cycle. Prices are going to trade in a higher than normal range throughout this cycle. Price decline will not happen until there is a slowing of demand.  Slowing demand can come in many forms, yet in this cycle affordability will be what many look to as an indicator of lumber’s inflection point," Little told Fortune.

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