Lumber prices have reached their lowest point in 25 years, sparking both relief and concern in the construction and home improvement sectors. Kyle Little, COO of Sherwood Lumber, joined CNBC’s “The Exchange” hosted by Kelly Evans to discuss the implications of this significant price drop.
A Historical Perspective
According to Little, the peak of softwood lumber consumption occurred in 2021 when housing starts surged to over 1.8 million. By 2022, the market experienced a “great reset,” reverting to long-term averages and eventually breaking new lows. Entering 2023, the market found a cyclical low, creating a stable foundation.
A False Optimism
As 2024 approached, industry optimism was high, but the reality of declining demand quickly set in. Little noted that the industry’s failure to anticipate this decline has been a critical factor in the current situation.
Comparisons to Pre-Pandemic Levels
Little explained that when adjusted for inflation, today’s lumber prices are approaching all-time lows over the past 25 years. Although there is still potential for prices to drop further, he suggests that the market may have already bottomed out, with recent trading activity indicating a possible shift.
The Impact on Projects and Builders
The current price of lumber is attracting those who were previously priced out of projects. Evans shared an anecdote about a designer who observed clients re-entering the market as lumber became more affordable. However, Little pointed out that while lumber prices have decreased, the cost of labor and other materials remains high, which continues to affect overall project costs.
The First to Move
Historically, lumber prices have been the first to rise and fall in the building materials market. Little believes that lumber will also be the first to recover, potentially setting a trend for other materials to follow. This pattern is something industry professionals should watch closely as it could signal broader market movements.
Affordability and Negotiation
Little shared his personal experience with a recent home remodel, noting that prices for building materials are becoming more negotiable. While not all materials have seen the same price drop as lumber, the trend towards increased affordability is encouraging for homeowners and builders alike.
Potential Market Movements
The lumber market’s recent stabilization suggests that prices might be poised for a rebound. This potential recovery could be driven by renewed demand and the natural market cycles that have historically characterized the industry.
Economic and Industry Implications
The drop in lumber prices reflects broader economic trends, including the slowdown in home building and the impact of inflation on construction costs. As these factors continue to evolve, the lumber market will likely remain a key indicator of economic health and industry stability.
“Housing Prices at an All-time High”
People in the comments shared their thoughts: “Those poor fools that built homes in 2021-2023. They over paid hundreds of thousands of dollars on some houses.”
Another person added: “Notice a new building, a lot of the frames are zinc coated light weight, low cost metal . They are using wood sparingly. Build low, sell high.”
One commenter concluded: “If builders would cut their prices then more people would buy houses and lumber companies could sell more lumber. Lumber may be at an inflation-adjusted all-time low but housing prices are at an all-time high.”
Opportunities and Challenges
Lumber prices at 25-year lows present both opportunities and challenges. While lower prices are making projects more affordable and bringing clients back into the market, the ongoing high costs of labor and other materials complicate the overall picture. As the market navigates these dynamics, industry professionals and consumers alike will need to stay informed and adaptable.
Managing High Costs of Labor
What are your thoughts? How do you think the significant drop in lumber prices will affect the broader construction and home improvement industries in the long term? What strategies can builders and homeowners employ to manage the high costs of labor and other materials despite falling lumber prices? How might the recovery of lumber prices influence the pricing and availability of other building materials?
Explore the full insights by viewing the video on CNBC Television’s YouTube channel here.
