Lumber Prices Are Sending A Signal

  • 4 min read

Look, we’re all trying to have a crystal ball on what’s happening with lumber prices because it affects all of us whether you’re a builder, contractor, homeowner, lender, or even in the lumber industry. Where the prices are going it’s going to affect our future and what plans we make. 

So here’s a recent article from fortune saying that lumber prices warned about inflation are trying to tell us something. What is it trying to tell us? Here’s the very volatile chart of lumber prices where they’ve been. We’ve talked about for many decades they always stayed in the roughly three to 400 range, now they’ve been up over a thousand and back under a thousand. 

What are they saying? Well buried in this article is a very interesting fact. The way lumber prices behave in the fall when commodity prices traditionally rise could be a big signal of how bad the economic contraction will be. That’s the question. It will be interesting to see if lumber starts to move back up. It will tell us that the US economy starting to sift through the interest rate hikes and the inflation and the economy not be as bad as people think it will be. That’s the key. We’re already starting to see people get used to the higher interest rates. Especially in real estate and real estate sales volume. Although it’s lower the prices haven’t gone down. 

There have already been some job numbers that have come out, 300,000 some odd new jobs formed. There’s certainly an emotional reaction to inflation, lumber prices, interest rates, and gasoline prices that happened at the beginning of June middle of June. So people pull back and they took a breath, is this going to be what happens after the summer? Once people get over their vacations and out of quarantine and all the other factors that have kept us distracted for years and decide what are we going to do now? Are we going to buy a new house? Are we going to add on to our current house? Are we going to spend more money or is the economy going to collapse further? Right, the economy zipped up and leveled off a little bit, now the question is does it dive or does it continue to climb? 

It’s certainly not going to climb at the same rate that it did before. But the fact that there’s inflation there’s a fact that employment numbers are still looking good could indicate that the next move could be slightly higher. And if real estate moves higher then the lumber prices are going to follow suit. If you think about it, there’s been a pullback on the retail side because people are staring at $6 gas 6% mortgage rates and higher food bills, and so they pull back. The lumber industry did the same emotional pullback. The question is once the fundamentals kick in. What’s going to happen?

So, you know here it is basically the end of July. Let’s all keep an eye on it. And maybe in September or October circle back again and look to see where we’re at compared to the lumber price then to what it is now and the overall economy. It can be a leading indicator in some cases but also when it’s emotional it can be a lagging indicator. It could be that people get scared and don’t buy the lumber futures. A lot of builders who build more in the summer in the fall have already bought their lumber. There are some parts of the country that don’t do as much for lumber framing construction in the cold winter months and in parts of the country you just can’t build. So when that pullback naturally happens, we’ll see how far back it goes if it stays the same or creeps up a little more. That means that we’re probably kind of in line and being prepared for a higher move up. It’s kind of like the groundhog. If he sees a shadow, he’s going to run back for six more months of winter. So if you see a pullback in the fall, that probably means there’s more downside to happen. On the other hand, if the lumber price groundhog does not see a shadow of a downward move in the fall, that means that consumers are at least holding strong for now. The future might be higher lumber prices or at least, lock them in at six or $700, and then that may be the new range for years to come.

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