The Expert Podcast

The pain in the lumber market is not over. Commodities experts and analysts are saying that 2023, especially the beginning of the year, is going to be even more difficult for lumber producers and mills than the previous year. They call it a treacherous market. Lumber prices are already down 66 percent, and they consider that a crash from previous highs. The reasons are simple: the rising mortgage rates kept people from buying houses, and the slowdown in home sales made builders not want to build too many more new homes.

The analysts they talked to from Westline said it's a treacherous lumber market, and the price of lumber is already down from 1160 to 400 per thousand board feet. That's a huge drop and actually was higher than 1160 the previous year. So, don't expect lumber prices to go back up dramatically. But at the same time, you may find that once this balance is out and all this mill curtailment capacity is absorbed, it may spike up again because the mills are now curtailing their output—they're shutting down production.

At 400 bucks, it's not worth producing. Some of these curtailments may become permanent because once mill equipment and employees become used to the fact that they're not being used, the equipment can get outdated, not repaired, and not maintained. Employees take other jobs. Now, if you all of a sudden have a demand level that goes up in, let's say, the 2023 or 2024 model year, you're going to have a capacity constraint that spikes the prices back up because of construction.

The question is going to be whether or not people want to buy homes again in the next two or three years. But there's still demand because there are 5 million homes fewer than are needed by the current market of residences.