Builders are feeling relief, unless they had stocked up on product expecting an extended period of elevated prices.
The bigger they are, the harder they fall is an old aphorism that has captured the reality of lumber prices. After an enormous run-up, they’re headed back to earth.
Future prices were down to $996.20 at the end of Monday, June 14, according to data from Nasdaq, finally cracking the $1,000 per thousand board feet floor. The price closed at a high of $1,670.50 on May 7.
The accompanying crashing noise is the soundtrack of relief for some and panic for others.
“I had a subcontractor who quoted a job for me in April and then quoted the same job in mid-May and his price went up 70 grand in three weeks,” Joe Pecoraro, a project executive at Skender, tells GlobeSt.com. “I was freaking out because you commit to the client at the original numbers. Then, last week he got back to me and said, ‘I’m okay at my original price.’”
Just two weeks ago, Nick Minoia, a founding principal at Diversified Properties, told GlobeSt.com about the strategies they had been using to manage spiraling lumber costs. “I have 266 units under construction in Union, N.J.,” he said. “I bought the entire building [stock], a 4-story building, back in February and took delivery in early March so not only could I lock in the price but be sure we had it.”
The people likely reaching for an aspirin bottle are those who stocked up, expecting numbers to remain elevated. “Normally they wouldn’t be buying the material because they had the confidence that material prices would be stable,” Mike Wisnefski, CEO of online commodities marketplace MaterialsXchange, tells GlobeSt.com. “They were forced into covering their needs, generally for a longer shipping period than they normally would.”
While there has been an imbalance in lumber supply and demand, with the pandemic pushing up demand for new housing construction and also hampering the supply chain, the skyrocketing pricing also became a self-fulfilling prophecy.
Wisnefski estimates that many builders were carrying 10% more inventory than they normally would. “When everyone carries 10% more, that makes the apparent demand higher than it would be,” because future purchases are brought forward out of concern about potential increases in price and thin availability.
But will lumber continue to decline back to pre-pandemic levels? It’s too soon to tell. “As we got to very high prices relative to recent history, anyone who could push a project off pushed a project off,” Wisnefski says. But they didn’t cancel, so as postponed building resumes, there could be a rebound in pricing.
Source: “Lumber Prices Suddenly Move Downward“