In his recent video, DIY YouTuber Dave from the channel DIY with Dave provided an insightful analysis on the current state of the lumber market and what could be in store for the future. According to Dave, while lumber prices have been relatively stable over the past year, several factors are converging that could lead to significant price increases in the near future.

A Period of Stability, But Not for Long

A Period of Stability, But Not for Long
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Dave begins by noting that lumber prices have remained mostly flat throughout the year, a trend that is unusual given the typical spike in prices during the summer building season. “If you look at the graph, it’s clear that prices have been stable,” Dave explains, “but when you zoom out, you can see that things have been crazy before, and we might be heading back in that direction.”

The Cost of Production and Mill Closures

The Cost of Production and Mill Closures
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One of the key factors Dave highlights is the cost of production at lumber mills. He points out that the break-even rate for most mills in North America is around $450 per thousand board feet, but this figure can vary depending on the specific mill’s circumstances. “The closer we get to that break-even line, the more strain it puts on lumber mills,” Dave says. When mills can’t cover their costs, they may shut down or curtail production, which reduces the overall capacity of the market.

The Impact of Mill Closures on Market Capacity

The Impact of Mill Closures on Market Capacity
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Dave explains that numerous mill closures and production curtailments have already occurred, leading to a significant reduction in the market’s capacity. “If we close 50 mills, that’s a reduction of 100 million board feet of lumber in the market,” he notes. “In reality, hundreds of mills have closed in recent years, resulting in a loss of over a billion board feet of lumber capacity. That is significant.”

Demand for Lumber and the Housing Market

Demand for Lumber and the Housing Market
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The demand for lumber is currently low, largely due to a slowdown in home construction. However, Dave warns that this could change quickly. With millions of potential homebuyers sitting on the sidelines due to high home prices and interest rates, any reduction in rates could lead to a surge in demand for housing – and, consequently, lumber. “If the Federal Reserve lowers interest rates, the cost of owning a home will come down, and that could unleash a wave of new home construction,” Dave explains.

The Potential for a Price Spike

The Potential for a Price Spike
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Dave is concerned that the reduced capacity at lumber mills could lead to a dramatic price spike if demand increases suddenly. “If the demand for lumber goes up faster than mills can increase their capacity, we’re going to see prices shoot up,” he warns. This scenario is reminiscent of the lumber price surge seen during the pandemic, which caused significant disruptions in the construction industry.

A Complicated Market

A Complicated Market
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However, Dave also acknowledges that the market is complex and unpredictable. While a drop in interest rates could lead to increased demand for homes and lumber, it could also drive up home prices, which might offset the affordability gained from lower mortgage rates. “It’s just a time to wait and see,” Dave advises. “There are a lot of ‘ifs’ out there, and we need to be prepared for whatever happens next.”

What’s Next for Lumber?

What’s Next for Lumber
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As Dave concludes his video, he invites viewers to share their thoughts on the future of the housing and lumber markets. “Do you think the housing market is poised for a comeback? Will home prices crash? Are lumber prices going to shoot up again, or will they stay stable?” These are the questions Dave leaves his audience with, highlighting the uncertainty that surrounds the market at this moment.

“Turning This Into a Nation of Renters”

“Turning This Into a Nation of Renters”
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People in the comments shared their thoughts: “I have another prediction and nobody is going to like it. When interest rates go back down, there will be more institutional and boutique  investors who will outbid first time home buyers and hoard more properties than ever in their mission to turn this into a nation of renters. Not because those investors need to get a home loan but because with lower interest rates renting homes will be more lucrative than other investments.”

Another commenter added: “Where I live lumber is pure garbage. Lowe’s and Home Depot have the absolute worst. When you look at prices vs. quality it’s ridiculous. We were told at a Home Depot that we had to buy lumber from the top of the stack and we could not cull anything out. So, we buy crooked lumber with knots everywhere and twists too. I don’t know about you but I want what I pay for. Nothing more and nothing less. When paying the insane price shouldn’t it be decent quality?”

A Market on the Edge

A Market on the Edge
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In summary, Dave’s analysis paints a picture of a lumber market that is currently stable but could be on the brink of significant upheaval. With mill closures reducing capacity and potential changes in the housing market on the horizon, lumber prices could become highly volatile in the near future. For DIY enthusiasts and professionals alike, it may be wise to keep a close eye on these developments to avoid getting caught off guard by sudden price increases.

Impact on the Broader Construction Industry

Impact on the Broader Construction Industry
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What do you think? How might the closure of lumber mills impact the broader construction industry in the long term? What strategies can lumber mills adopt to remain profitable in the face of rising costs and market volatility? How could changes in the housing market influence other related industries, such as home improvement and real estate?

For additional insights, view the full video on DIY with Dave’s YouTube channel here.