Good News/Bad News on Lumber cost and supply.

What The Rise And Fall Of Lumber Prices Tell Us About The Pandemic Economy

July 8, 20215:01 AM ET
Heard on Morning Edition

Scott Horsley

Twitter


Lumber is stacked up for sale at a Home Depot store in May in Doral, Fla. Lumber prices surged during the pandemic, only to fall as the economy started to open up again. But prices remain volatile and still more expensive than pre-pandemic levels.

Joe Raedle/Getty Images
It's been a roller-coaster ride for lumber prices over the last year – and it's drawn outsize attention from the aisles of Home Depot to the Federal Reserve.

Lumber prices surged to record highs this year on the back of booming demand from homebuilders and do-it-yourselfers with plenty of time on their hands. The price surge was so big and sudden, it became a symbol of what some economists feared: rampant inflation.

But over the past two months, lumber prices have been dropping equally fast, giving weight to the central bank's argument that pandemic price spikes for many products are likely to be temporary.

That's not the end of the story, however. Lumber prices may have fallen, but they are still elevated, creating new headaches for the critical housing sector. And companies in the lumber industry are wrestling with a new pandemic problem: a shortage of workers.

Here are three things that the rise, fall and now volatility of lumber prices tell us about the pandemic economy.

Behind the great rise of lumber prices
The supply shock that sent lumber prices to record levels this year did not come from a shortage of trees: The price of raw timber has barely budged.

Instead, the lumber crunch was centered on sawmills, which cut round timber into square boards.

"You can think of us as the grain mill in the ecosystem of the timber industry," says Ross Stock, a third-generation sawmill operator who runs Western Cascade Industries in Toledo, Ore.

In the early months of the pandemic, many sawmills shut down, both for health reasons and because they assumed demand for lumber would plummet.

Instead, demand took off. Stuck at home, Americans in large numbers began adding decks, repairing fences and even building treehouses.



A worker in Spanish Fork, Utah, assembles a truss for a home in May. Economists saw the surge in lumber prices as another example of potentially rampant inflation. Instead, prices fell.

George Frey/Getty Images
Professional homebuilders also got busy, as rock-bottom interest rates and a desire for more space pushed demand for housing into high gear.

According to the National Association of Home Builders, single-family home construction jumped 12% last year, and remodeling activity climbed 7%. Meanwhile, domestic sawmill output rose just 3.3%.

As a result, lumber prices soared — from $349 per thousand board feet in April 2020 to $1,514 this May, according to the trade journal Fastmarkets Random Lengths.

"It was absolutely an astonishing run," Stock says.

That run in lumber prices sparked concerns about inflation as prices across a range of goods similarly jumped.


Economy
Inflation Is Surging. The Price Of A Toyota Pickup Helps Explain Why
And then there was the great fall ...
Since lumber prices peaked in May, however, demand has cooled sharply.

With vaccines rolling out and the impact from the pandemic easing, do-it-yourselfers have found other ways to spend their weekends.

"People are stuck at home less. They can go out and travel more. They can go out to restaurants and bars," says Dustin Jalbert, a Fastmarket economist who follows the lumber industry. "In the home centers like Home Depot, Lowe's, the wood volumes going through there have slowed substantially, especially for items like decking and fencing."

Professional homebuilders are also tapping the brakes, in part because it's taking longer to get appliances and doors and other building materials.

Florida homebuilder Chuck Fowke ordered windows for a house he was building in November. They finally arrived six months later.

"You have builders who have building permits that aren't starting the houses," says Fowke, who's also the chairman of the National Association of Home Builders. "You have some that poured their slabs, and they haven't gone any further."

In the last two months, the composite price index compiled by Random Lengths has tumbled by 50% to $770 per thousand board feet.


Business
Lumber Prices Are Finally Dropping After They Soared During The Pandemic
Federal Reserve Chair Jerome Powell sees that drop as a good sign.

"Prices like that that have moved up really quickly because of shortages and the bottlenecks and the like, they should stop going up, and at some point in some cases, should actually go down," Powell told reporters in June. "And we did see that in the case of lumber."



Federal Reserve Chair Jerome Powell testifies at a House Coronavirus Subcommittee hearing in June. Talking to reporters last month, Powell mentioned the fall in lumber prices as a sign that some pandemic price spikes would prove transitory.

Graeme Jennings/Pool/Getty Images
But for lumber, that's still not the end of the story
Despite the recent drop in prices, lumber still costs about 80% more now than it did before the pandemic — a premium that builders say is adding tens of thousands of dollars to the price of a new home.

And the supply of lumber is still not growing very fast.

Sawmill operator Stock says building a new mill would cost tens of millions of dollars. He's trying to boost output at his current mill, but like other in-demand industries such as restaurants and hotels, he's now struggling to find workers.

"It takes time to improve a mill. It takes time to develop people," Stock says. "I've worked in sawmills since I was 8 years old. It's hard work."

Forecasters say lumber prices may have more room to fall. But price volatility creates its own headaches.

"The challenge right now for a builder is, if you're asked to give someone a price for a home, it's very difficult," says Fowke, the Florida homebuilder. "We're used to having prices change every six months or every 12 months. We're getting price changes every two weeks."

And even if two-by-fours are no longer propping up inflation, that doesn't mean prices will return to their pre-pandemic wood floor. So lumber may continue to capture headlines as yet another example of a product upended by the unprecedented pandemic.

"It's kind of like the price of gasoline," says Jalbert, the economist. "Lumber has been the sort of poster child for these supply shocks that we've see

 

First photo is great. End grain of 2x4's. LOOK how many of them are very close to the tree center, based on the growth rings. And this pile isn't near as bad as some I've seen in big box stores. Lumber has to be coming out of tiny trees.

 

...and that's not just lumber...

 

I had to buy 40 2x4s to finish up a project that I started with pine 2x4s last year and that my home milled oak 2x4s just didn't work with. LOL past experience has taught me combining true cut lumber with big box lumber does not end well. I had to sort through 2 stacks of their 2x4s to find 40 almost kind of straight and not warped boards that I could work with. Rare to see cupping in 2x4s but I found several in the stacks that were cupped so bad on one side it was splitting the opposite side. Of the 40 I did buy a dozen of them warped before I got them screwed on and I had to soak them and put concrete blocks on them and let them dry out again to get them straight again. $10.28 per 8' board at the time. Yep all cut from small wood and young trees. By the time I was done fighting that project to a finish, I was thinking I should have just milled some hickory logs and ran them through the planer to match up. Would have been easier than fighting with that premium over priced junk that was better suited to bonfire than a building project.

Edit: And they can't be getting more than 4-6 boards out of the little trees they are using.

 

Here in Coastal SC we have a lot of 60- 80 year old southern yellow pines-- tall. big diameter trees. I see trucks hauling them all the time-- not to a saw mill for lumber but to the paper mill, I've always thought what waste of good trees. I have many many such trees on my property can't mill it myself (not allowed by the nanny state) for structural timber. ​

 

A large portion of hickory trees here go to the local lumber yards and become RR Ties..... So at least they are not being turned in to toilet paper and cardboard boxes

 

RR ties another waste I made hickory kitchen cabinets years ago for our kitchen. Hickory
makes some beautiful lumber

 

The US, still use wood sleepers, what a waste. Concrete Ties last for years and needs less upkeep.

 

Tie grade logs are low grade not really fit for making lumber. But you're right, hickory makes a beautiful set of cabinets, just kinda hard on tooling.

 

The US also builds mostly 'throw away' houses out of sticks and plywood/OSB that would be laughed at in many parts of the world, where they build 'multi-generational' housing. Your great grandkids will be living in it.

I went up in the unfinished attic of a fairly modern (built in the 1960's, we were there in the mid 70's) 2 story house where we lived in Germany, and it was concrete floor.....same as the 2 floors below. Rafters were 4x8 beams with wood purlins running horizontal the clay tile shingles hooked on ...not nailed on, have a 'nub' cast in the back of the tile so it simply lays on the purlins, hooking over the top one of that course of tiles. Only wood in the house other than trim/doors/cabinets.

 

Not quite. Tests run by the railroads back (I think) in the 40s showed that wood is resilient enough to take the pounding of rail traffic far longer than other materials. Concrete was especially subject to cracking and requiring frequent replacement.
Rail roads are perhaps more resistant to change than any other industry, and I suspect that newer materials would work as well, if not as economically.

 

The RR is switching over around here to some sort of fiberglass cross-ties. Wood is on its way out.

 

A lot of lumber now comes from plantation trees, clear cut with machines, plant fast growing hybrid trees, wait 25 to 35 years, harvest and repeat.

Forests in the Southern U.S.

While that gives you the most lumber per acre in the shortest time, the knots start at ground level, first limbs aren't 40 feet up like in old timber and thus no knots in board, growth rings are large due to quick growth, thus twists, warps, rots quickly etc. As long as we either strip mine our forests or put them in federal wilderness areas and let them burn down over time, don't expect to see good lumber again.

Then there is always the long term view of the big companies, they operate for the greatest return on their investment as they should. It does indeed however warp the long term values of land stewardship.

Real Estate

But it goes down to every level, around here when grand dad dies, the kids at once sub divide the 20 acre self sufficient home he had into 7 "estates" and one old house, sell the house and 2 acres of land and the local builders build 6 houses that sell for $4 to $5 hundred thousand on those lots and sell to people escaping the city life and bringing it with them.

 

And the truth about wood sleepers is a cover up when the PTB say how poor concrete sleepers are.
Yet another scam by the forces at work to continue using a system long gone.

Why you say? Well hell if anyone wants to see the "inferior" concrete sleepers just go to Japan, ride their trains at ++ 100MPH and then come back to the US and take a trip across the US on a train that is often limited to 50 MPH. It is all the usual graft and the powers in control of the Rails, just the usual pay off at all levels of the industry which controls the Cream of Money and leaves the system to rot.
In '68 I rode the Japanese rail system for near a thousand miles.
First class all the way and never lost a drop.

OTOH US Train Cars will have a vertical displacement between cars of a FOOT as the bad sections are passed.

Yes this was on a1200mile trip on good old Amtrak 3 years ago.

 

Ever look at some of the lumber-- the growth rings are are large in these hybrids fast growing trees. I remember reading about SEARS used to sell house kits back in the 30's had lumber with no knots can't find lumber without knots these days

 

My pines on the ground are turning ''Blue''
Bark is falling off also, It rains ever frick'en day down here, We can't get into the woods with tractors in order to pull the logs out.

 

Blue stain fungus?
Blue stain poses no health risk, and blue-stained lumber is safe to handle. Does blue stain cause decay? Blue stain is not a decay fungi. Blue stain fungi live on the nutrients stored in the cells of the wood, not on the cellulose fibers of the tree itself.
Is thus what you have in your pines?

 

I've been told its blue stain and expensive wood if one was to buy it

 

Can if you make your own.

105 2x4x12' that came out of one 22" diameter poplar. 60% of them are knot free.

 

Can you use that in construction in TN SC you can't pretty lumber you got there