I am certain only a handful of you actually care about this, but I find it fascinating because of how ridiculous it is. At a certain level, this effects you every bit as much as oil prices. Lumber prices are a driving factor of new home construction costs. When lumber is up, all other building materials follow suit and new home prices increase. When new home prices increase, so do existing home prices. So if you own a home, you own lumber and the continued strength of lumber is a very positive indicator of continued strength in home values. On the flip side, if you don't own a home, you are going to pay an extra 10-20% when you do buy one unfortunately. There are no signs of this correcting anytime in the near future either.
So unlike oil, we do not buy lumber at a pump every week. But every 7 years or so you the average homeowner does trade lumber in some form or fashion when they sell a home. From 1993-2020 lumber stayed in what we call a supercycle where the futures market stayed in a range where the high average was about $400 per 1,000 bf. When lumber is at $400 per 1,000 board feet (MBF), the framing package on a 2,000 sf home is about $12k. Today lumber is back up over $1000 per MBF and that framing package is worth more like $30K+. That's an $18K difference in about 18 months. If gas increases $2.00 a gallon overnight, it will take the average driver 14 years to add up to $18K in additional gas spending.
Luckily with lumber its not just an expense as most of us own homes. But other than last spring, there is very rarely public discussion about lumber prices. Where we currently sit today is the equivalent of $250/barrel for oil.... Oil is currently around $70.
Back to what lumber is doing. We bottomed in August like I expected and prices have nearly followed my projection to the t until about 3 weeks ago. Major flooding in BC took out some highways and railroads that are critical to lumber supply chain issues. So we have seen prices spike faster than I would have expected, but it was always going to climb back up with the demand side factors the housing industry has and the curtailments the mills needed to get some maintenance completed. The dashed yellow line is my forecast from August on how lumber futures will behave long term. Currently we are up 124% from the August low.
View attachment 23239
That's the futures market, below is the data from showing real world wholesale prices. As you can see the panic is back. Prices are about 50% higher than they were this time last year. With that said, I think last year lumberyards were sitting on their hands thinking lumber would come back down and it kept going the other way until at the very last minute everyone started buying to cover orders. That shouldn't be as bad this year because, hey... $1000 lumber isn't so crazy anymore. Dealers and wholesalers aren't going to get caught off guard so bad this coming spring, but transportation may cause some problems none the less.
View attachment 23240
My guess is we hit a peak in January-February somewhere between the previous peak and my August forecast. It will come down from there but nowhere near as low as it was in August. OSB has not been as bad as lumber so far, which is good, but if the box stores start piling in like they did last year, it will skyrocket too.
This is bullish for housing prices. We still have an imbalance of housing as the big group of millennials come to home buying age and unless PE groups and hedge funds that bought up all of the rental properties dump them overnight, don't expect home prices to come down anytime soon. Existing home prices and new home prices are directly correlated. Until we are able to build more affordable homes, potential buyers are going to drive up the prices of existing homes... not to the same extent as before, but slightly to modestly higher than usual in most cases.
https://www.noradarealestate.com/blog/housing-market-predictions/
Yeehaw all you homeowners. You are going to have another solid appreciation year in 2022.
So unlike oil, we do not buy lumber at a pump every week. But every 7 years or so you the average homeowner does trade lumber in some form or fashion when they sell a home. From 1993-2020 lumber stayed in what we call a supercycle where the futures market stayed in a range where the high average was about $400 per 1,000 bf. When lumber is at $400 per 1,000 board feet (MBF), the framing package on a 2,000 sf home is about $12k. Today lumber is back up over $1000 per MBF and that framing package is worth more like $30K+. That's an $18K difference in about 18 months. If gas increases $2.00 a gallon overnight, it will take the average driver 14 years to add up to $18K in additional gas spending.
Luckily with lumber its not just an expense as most of us own homes. But other than last spring, there is very rarely public discussion about lumber prices. Where we currently sit today is the equivalent of $250/barrel for oil.... Oil is currently around $70.
Back to what lumber is doing. We bottomed in August like I expected and prices have nearly followed my projection to the t until about 3 weeks ago. Major flooding in BC took out some highways and railroads that are critical to lumber supply chain issues. So we have seen prices spike faster than I would have expected, but it was always going to climb back up with the demand side factors the housing industry has and the curtailments the mills needed to get some maintenance completed. The dashed yellow line is my forecast from August on how lumber futures will behave long term. Currently we are up 124% from the August low.
View attachment 23239
That's the futures market, below is the data from showing real world wholesale prices. As you can see the panic is back. Prices are about 50% higher than they were this time last year. With that said, I think last year lumberyards were sitting on their hands thinking lumber would come back down and it kept going the other way until at the very last minute everyone started buying to cover orders. That shouldn't be as bad this year because, hey... $1000 lumber isn't so crazy anymore. Dealers and wholesalers aren't going to get caught off guard so bad this coming spring, but transportation may cause some problems none the less.
View attachment 23240
My guess is we hit a peak in January-February somewhere between the previous peak and my August forecast. It will come down from there but nowhere near as low as it was in August. OSB has not been as bad as lumber so far, which is good, but if the box stores start piling in like they did last year, it will skyrocket too.
This is bullish for housing prices. We still have an imbalance of housing as the big group of millennials come to home buying age and unless PE groups and hedge funds that bought up all of the rental properties dump them overnight, don't expect home prices to come down anytime soon. Existing home prices and new home prices are directly correlated. Until we are able to build more affordable homes, potential buyers are going to drive up the prices of existing homes... not to the same extent as before, but slightly to modestly higher than usual in most cases.
https://www.noradarealestate.com/blog/housing-market-predictions/
Yeehaw all you homeowners. You are going to have another solid appreciation year in 2022.
