New home buyers may soon see some much-needed price relief, with reports saying that the lumber market bubble has finally “burst”.
Lumber prices rose to record highs during the height of the COVID-19 pandemic, adding significantly to the cost of buying a new home. But the price of lumber is now falling fast, more than 12% in the last week alone, to hit its lowest point so far this year.
Experts say the falling price of lumber will be welcome news for both builders and new home buyers. In the last year, rising lumber prices added around $18,600 to the price of a median new home, according to data from the National Association of Home Builders.
The price of lumber is now in decline due to a slowdown in the new home market caused by rising inflation and higher interest rates. Buying is now simply too expensive for many Americans, leading to lower demand. That has led to a glut in the lumber market, with inventories piling up. Lumber yards have reduced their orders and sawmills are therefore slashing their prices, Market Insider reported last week.
As of last week, lumber prices were down 47% from the beginning of the year. They are down 65% from the record high of $1,733 per thousand board feet. It’s a substantial price drop that experts believe will help to ease inflationary pressure on the housing market, allowing the cost of building a new home to come down.
Fastmarkets RISI lumber market economist Dustin Jalbert told Fortune that he believes the volatility seen in the lumber market is now over, unless a new and unforeseen economic crisis emerges.
“I think the worst is behind us now,” he said, though he acknowledged there is still some concern about what demand for lumber will look like in the second half of the year amid fears of a recession.
Kyle Little, chief operating officer at Sherwood Lumber, told Fortune that the
re’s still a lot of backlog in fulfilling demand and supply issues, which is what triggered the record-high prices in the first place. He said lumber producers are now focused on getting through their current commitments, and that once done we should see lower lumber prices.
According to Jalbert, he believes lumber prices will likely moderate between $450 and $600 per thousand board feet. He doesn’t forecast a collapse of the market though.
“There’s still decent underlying demand that will support housing construction,” he stressed.