A handful of products define the collective memory of the early days of the pandemic. There were the weeks when toilet paper flew off the shelves, to the point where more than one or two rolls had to be traded. For a while, everyone was buying yeast, because it seemed essential that we all make sourdough bread. And then there was the lumber craze, when lumber prices hit record highs.
Once we were all cooped up in our homes, many people looked around, realized they hated their homes, and decided it was time to make a (sometimes drastic) change. That meant a lot of moving, even more renovation projects, and a lot of lumber. Unfortunately for motivated renovators, the supply side of the equation was caught off guard: sawmill operators cut back on operations, assuming the pandemic would cause losses. less activity, no more. The price of Western SPF two-by-four lumber — an industry benchmark — has risen from less than $400 per thousand board feet in January 2020 to more than $1,600 in May 2021.
But what goes up often comes down, and lumber prices have fallen drastically as demand has slowed and supply has increased at a rate that is no longer necessary.
“It’s low and slow, and it’s been that way for a while,” said Stinson Dean, CEO of Deacon Lumber, a lumber trading company.
A lot of the industry is losing money at these prices right now.
After peaking in the spring of 2021, lumber prices briefly crashed before recovering to $1,400 in early 2022. Later in the year, prices dipped into the $300-$400 range and have stayed there. While these prices are similar to pre-2020 levels, Dustin Jalbert, senior wood economist at Fastmarkets RISI, told me that industry changes and the higher cost of production meant lumber suppliers were under pressure.
“A lot of the industry is losing money at these prices right now,” said Jalbert, who joked that lumber was having another “moment” in the media, “but for opposite reasons.”
Supply and demand were the culprits behind the price spike, and they also helped fuel this fall. Let’s start with the demand side: The Federal Reserve has been raising its benchmark interest rate in recent years, taking mortgage rates with it. The average 30-year mortgage rate was below 3% just a few years ago, but it’s now around 7%.
High interest rates are leading to a decline in home construction and a drop in existing home sales to levels not seen since the Great Recession. If you own a home and are considering moving, the thought of doubling your mortgage rate is hard to swallow, which is incentivizing people to stay put.
Renovations and repairs have also slowed down. Many activities were brought forward during the pandemic: those who wanted to build a new terrace or an extension already did so in 2020 and 2021. TO DO Homeowners often have projects they want to do on their homes, but they’re not exactly keen on tapping into their equity to do it, given interest rates. Homeowners also tend to do most of the work on their homes within a few years of buying them, so if they’re not moving, they’re not renovating either.
Paul Jannke, principal of Forest Economic Advisors, said the housing market malaise is a big problem for the timber industry. He said residential construction — including new construction, renovations and repairs — accounts for 70% to 75% of real wood consumption. Housing starts were down 18% from the first quarter of 2022 compared to the first quarter of 2024, and spending on home improvements was down 21%, adjusted for inflation, he said. Given the weakness in that market, the demand problem is understandable.
On the supply side, in summary, producers have been a bit overwhelmed by their (wooden) skis. The amount of wood produced may have been good in 2021, but not so much now.
High pandemic-era prices have pushed many people to invest in sawmills (the place where a tree becomes a piece of lumber), particularly in the southern United States. Some have closed, but overall, U.S. sawmills are producing about 4 billion board feet more than they will in 2022, Jannke said. It’s not just a U.S. problem: B.C. suppliers have historically exported a lot of lumber to China, but the Chinese real estate market has collapsed, so that wood isn’t being shipped overseas and is instead being diverted to the already-flooded U.S. market. Tariffs on lumber from Canada to the U.S. are expected to increase this summer, so Canadian sawmills are continuing to keep production going before that happens.
“There is so much wood,” Jannke said.
Part of it is a classic bullwhip effect, a phenomenon in which changes in consumer demand cause wild swings in the supply chain. It is also a classic form of greed: People saw the sky-high lumber prices of 2021 and 2022 and decided it was time to jump into production or expand existing operations.
“A lot of people have become optimistic,” Jalbert said. “You have to consider the start-up time of a sawmill. It takes two to three years to ramp up supply — say 18 to 24 months from the start of construction to the time the sawmill reaches full capacity.”
All of this new production capacity came online just as things began to change.
“There was a lot of investment in new supply that was planned before COVID, and that got a boost during COVID,” Dean said. Some of those projects were paid for in cash, but others were financed with debt, and mills are still producing lumber to pay off those debts. Instead of winding down and waiting for prices to rebound, they’re stuck producing lumber for a market that doesn’t need it.
It’s the prisoner’s dilemma, but for wood.
“They have cash flow issues, they have debts to pay off and they just bought this brand new facility, so they can’t afford not to have cash flow,” Dean said. “They’d rather lose money and run their new facility.”
The price hike likely comes through mill closures, but many in the industry aren’t ready to give up. Some mill operators feel like they’ve done their part to slow down their operations and now it’s someone else’s turn to do it. It’s a prisoner’s dilemma, but for lumber. Many lumber producers, like many people, started the year expecting the Fed to cut interest rates sooner, triggering a new wave of demand. That didn’t happen. Mill operators also remember the experience of not having enough supply to meet a surge in demand, and they know that recovery takes time, so they may be hesitant to cut production.
In the long term, there is reason to be optimistic. The US needs to build more housing, so the long-term fundamentals look good and interest rates should eventually come down.
“Lower interest rates quickly take care of that because demand can come back pretty quickly,” Dean said. He told me that for now, he’s taking it easy, “posting a lot of fishing pictures and waiting for the market to decide,” and that he’s preparing to work a lot harder once things get back to normal.
While this may not be a great time for the lumber industry, if you’re in the market for lumber, now is a good time to buy it. Dean said that while the lower prices haven’t trickled down to stores yet, he expects them to soon.
“If you’ve been putting off a renovation project for three years, a deck, a fence, right now – and you have to watch prices – this summer will be the best time to secure materials for that in over four years,” Dean said.
If you really want to get into the nitty-gritty of this topic—and I assume if you’re planning a big project, you do—there are some imperfections. While lumber prices have gone down, the costs of many other building materials have not. If you’re building a deck, for example, the deck boards won’t be cheap, but the framing will be. Building a home is still much more expensive than it was in 2020. Robert Dietz, senior vice president and chief economist for the National Association of Home Builders, said that residential building material costs have increased more than 46% since May of this year. They’ve been roughly flat for the past two years, in part because of the decline in lumber.
“Other prices remain high for material costs, which means home prices will remain high,” Dietz said. The bright side is that building a new home is not as As expensive as it might have been if lumber prices had not fallen, the decline in lumber prices has helped keep prices relatively stable over the past two years.
Jannke said that while lower lumber prices haven’t led to lower real estate costs, “home builder margins are at or near record highs.” If you’re paying a contractor for your project, he may not be very keen on passing on the price savings to you. He’s paying for other factors like labor, maybe wiring and siding. He’s also running a business where he’d like to make as much money as possible.
“They’re not offering a lower price because the price of lumber is lower,” Jalbert said. “They’re offering a price because they look at people’s incomes and the price of homes and they say, ‘No, this is the price for this job, regardless of the inputs.'”
This doesn’t mean you have to accept the quote without asking questions. You can try to negotiate, or even show them this article and argue that things should get cheaper for them. Or, if you dare, you can always buy in bulk and try to do it yourself.
Emily Stewart is a senior correspondent at Business Insider, where he writes about business and economics.