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The futures price for lumber peaked in early May. But the “cash” price (the price sawmills charge distributors and wholesalers) kept hitting new all-time highs through last week. That has finally reversed: On Friday, the cash price per thousand board feet of lumber fell to $1,446, according to industry trade publication Random Lengths. That’s down from the $1,515 all-time high set a week prior. For some experts the dip suggests the “market has tipped.”

What does it mean? In the coming weeks, you might start to see a markdown on lumber prices but the current price of lumber is still up a staggering 304% since April 2020—when the price was $358 per thousand board feet.

“It’s looking more probable now a more serious pricing correction in the cash market for lumber is gaining steam as demand cools, and supply incrementally improves,” Dustin Jalbert, a senior economist at Fastmarkets. “Eventually the big-box stores will have to budge if the wholesale market keeps falling, but [it] doesn’t necessarily mean that’s next week, either.”

What’s happening? Economics 101. Prices got exorbitantly high, and home builders finally backed off a bit: In April, housing starts fell 9% from the previous month. Additionally, incentivized by record prices and aided by more workers returning to the labor market, sawmills are increasing supply.

“There are signs that mill inventories in North America are slowly building up, which is usually the canary in the coal mine that discounting will begin—which we are now seeing,” Jalbert said. “Buyers are sensing all this and have pulled back purchases dramatically, betting on the fact mills will be more apt to discount wood as a result. We’ll see who wins this standoff.”

This historic lumber shortage was spurred by a perfect storm of factors set off during the pandemic. When COVID-19 broke out in spring 2020, sawmills cut production and unloaded inventory in fears of a looming housing crash. The crash didn’t happen—instead, the opposite occurred. Americans rushed to Home Depot and Lowe’s to buy up materials for do-it-yourself projects, while recession-induced interest rates helped spur a housing boom. That boom, which was exacerbated by a large cohort of millennials starting to hit their peak homebuying years, dried up housing inventory and sent buyers in search of new construction. Home improvements and construction require a lot of lumber, and mills couldn’t keep up. Cue record prices.

The consensus across the industry is that worst of the lumber crunch is behind us.

“The flurry of record demand that we have been experiencing for the past few months is tapering off. We are seeing a significant difference in our new sales order pace relative to our current outbound shipments,” Kyle Little, COO at Sherwood Lumber said. “Therefore, our plan is for our inventory replenishment activity to mirror this new pace. Subsequently, we expect producer order files to shorten, loosening up supply, and bringing much needed price negotiability.”

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