Carpe Diem

Lumber prices are on the rise, as homebuilding picks up

In another possible sign of housing market recovery, framing lumber prices have been rising lately and reached $347 per 1,000 board feet last week, which was the highest level since early May 2010 (see blue line in chart).  And except for a sharp, temporary spike in lumber prices for about four weeks in April-May 2010, the $347 price is the highest since May of 2006, more than six years ago.  Likewise, CME lumber futures prices in early November of $319 were at the highest level since the spring of 2006, except for a one week price spike in April 2010 (see red line in chart).  While Hurricane Sandy may have contributed to a price increase in the last week or two, framing lumber prices have been trending upward since early 2009 towards the end of recession (see chart) and have increased by more than 82% since the cyclical low of $190 in January 2009. In the last year, lumber prices have increased by almost 38%, reflecting the strong rebound in new home starts, which have increased by 35% over the last year and reached a four-year high in September.

HT: Bill Greenway

Update: Lumber shipments by rail year-to-date are up 12.9% this year compared to last year, and by 22% compared to the same period in 2010.

14 thoughts on “Lumber prices are on the rise, as homebuilding picks up

  1. i’m not sure this lumber story is that simple.

    my understanding is that there has been a dramatic credit crunch at the distributor level that has dropped supplies a great deal.

    as a result, distributors are using futures instead of holding inventory which drives up the CME price and keeps supplies tight.

    i’m also wondering about overall production levels here.

    are we so sure this is a predominantly demand driven issue?

    • “i’m not sure this lumber story is that simple.”

      It’s nowhere near that simple.

      We entered the fraud zone back in the 1920s (I think), when they declared that a 2 x 4 didn’t actually have to have a finished size of 2 inches by 4 inches.

      More recently, the quality of lumber has been falling an falling and falling some more. It’s more and more difficult to get big slabs of clear lumber. Most of it is new planted pine, not really mature nor properly cured. There are more and more knots and warping in the framing and finish lumber of smaller dimensions, and they’ve been pushing that MDF and HDF and stranded glued-together garbage (not to mention the killer formaldehyde fumes… and the sulfur compounds from the Red Chinese wall-board).

      When you look at price variations you have to at least make a gesture at trying to hold quality constant.

      When they came up with insulated form concrete construction systems I naively thought it would bring high quality at lower prices because the styrofoam forms come in big pieces, reducing labor (as compared with both stick-built and brick-masonry, but, of course, bricks are rarely structural, anymore, but mere facade). But it turns out, IFC construction is considerably more expensive (still, there are other advantages and disadvantages to consider).

      Grump grump grump.

    • Sandy wouldn’t have had that large an impact in the prices. There may be some downward pressure in the coming weeks, but it doesn’t change the overall trend.

        • Moe, unless Sandy hit in 2009, I don’t think it had much of an impact. There’s been a pretty steady trajectory since 2009. Whether the increase in demand or a supply constraint, I’ll leave to others to sort out. But, we can pretty much rule out Sandy as the cause of the jump in prices since 2009.

          • i think moe was referring only to the recent jump in price.

            it seems reasonable to me to expect that lumber prices might spike in anticipation of a demand spike from rebuilding damage done by the storm.

            how much of a spike and how long it will last are certainly matters that could be debated, and i have no really good view on that, but the basic notion that the repair effort will increase short term demand and cause a price rise seems like a pretty reasonable assessment.

          • You are correct Methinks and Jon…I was speaking to the most recent uptick which caught most lumber providers flatfooted. I wasn’t look at the overall trend.

  2. Lumber futures are spiking up this am @ 7:45 PST <A HREF= (candlestick format is easier to read, imo).

  3. housing starts were over 2 million in 2005.

    they sit at about 875 today.

    that would seem to cast some doubt on calling this price move predominantly demand driven.

    it seem more like a supply contraction/simple price inflation.

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