Lumber Prices Hit Record Highs
We are living through one of the most perplexing periods I’ve ever seen. On today’s show we are talking about how in the middle of an economic downturn, some indicators suggest a red hot market.
Restaurants, Construction Companies, and DIYers Drive Demand
Lumber and plywood prices are hitting record highs as various sectors of the economy respond to the pandemic.
Restaurants and bars are buying wood to build makeshift outdoor seating options. In many parts of the country, including in New York City, outdoor dining service is permitted, but indoor operations are not. Additionally, home builders are purchasing large amounts of wood as they respond to rising demand for new homes. Low mortgage rates and a desire to be able to social distance in a single family home has led to an increase in construction. Additionally, people stuck at home this summer are working on home improvement projects and flocking to stores like The Home Depot (HD), Lowe’s (LOW)
Lumber futures have risen over 85% since April 1. July futures hit $499 per thousand board feet last week, and September futures reached $481.90.
Mill companies like Georgia Pacific have seen their shares rise due to booming demand for lumber since June. In March, as shutdowns hit the US, wood prices tumbled and share prices of companies like Georgia Pacific fell nearly 40%. Home sales slowed, as did construction. In response, many mills scaled back production. Now, these trends have been reversed, and mills are doing their best to keep up as construction companies, restaurants, and individuals flock to buy lumber. GP shares are up 50% in the past month.
All of this points to strong demand. These statistics mirror my own first hand experience. Last month, I purchased a small quantity of cedar lumber to build some planter boxes for my wife. All of the major suppliers of cedar lumber were out of stock with no forecast for new inventory. I was eventually able to buy what I needed, but it took several attempts to source the building materials.
I’m also seeing significant shortages in construction labour. If the project is small, consisting of half a day of work, finding labor is relatively easy. The weekend warriors who have full time work will often moonlight on small jobs. But if you have a significant job, be prepared to schedule the job several months out from now.
Other factors that can drive a spike in lumber prices include summer storms. In past years we have seen a significant jump in prices following a major hurricane. We are just starting hurricane season and have yet to experience any major storms making landfall in North America. It could be that we have a lighter than average hurricane season, but it’s too early to tell. It’s conceivable that we have some weather events at the same time as we are dealing with the COVID-19 pandemic.
The demand for detached housing seems to be stronger than ever in many parts of the country. We have seen a big drop in demand for high end rental apartments in the most expensive cities like New York, San Francisco, Miami, and Seattle.
If you looked only at the construction metrics in the economy, you would think we are in the middle of an economic boom. There are no signs of 11% unemployment, or of distressed properties hitting the market.
There are 4.5 million properties in default on their mortgages in the US. There are a likely similar number of rental units with tenants in default on their leases. Because there is a freeze on evictions, we won’t know the real statistics for many more months. It’s hard to make sense out of this economy.
If you are sitting on a construction quote that is more than 30 days old, chances are high that you will need to get a new bid for your job.