The Expert Podcast

As promised, we're still keeping an eye on lumber prices for you, our viewers, and also for our own internal use and our projects. A couple of months ago, there was some expectation in the market that lumber prices were going to come down and that the spike we saw was just a fluke. When interest rates went up and the real estate market crashed, then lumber prices were expected to come back down. Well, there was a little bit of a softening of lumber prices, but it didn’t take much, did it?

Mortgage rates dropped a tiny bit—11 basis points, that’s like 0.1 of a percentage point—and when it did, lumber prices went up 7% again. Now, they’re still under $1,000 per thousand board feet, still in the $600 range, but that pullback or softening of the lumber futures prices was very short-lived. It didn’t take much for it to bounce back up. What that tells us is that any type of strengthening expectation for construction or real estate is going to bounce those numbers right back up towards $1,000.

They may not cross over $1,000; they may stay in the $700–$800 range. But the days of $400–$500 lumber are, we believe, gone forever. How can it go back to that? The underlying factors that create that scenario are still there. One is: there’s still a shortage of homes. Period. It doesn’t matter if the real estate market is not as strong as it was. It doesn’t matter if the prices are through the roof. It doesn’t matter if interest rates are up in the 6–7% range.

People still need a roof over their head—they’ll figure out a way to do that. And once the dust settles on this new normal of interest rates and prices, and builders, developers, contractors, and buyers get used to the fact that, okay, houses don’t cost $200,000 anymore, now they cost $450,000. Interest rates aren’t 2.5% anymore—now it’s 7%. How do we make this work? And once everybody sees that that’s the new market, the building/construction machine will crank back up full bore.

And when that happens, the lumber demand is going to get back up to where it was. The same shortage of labor and the same shortage of materials is going to be behind the scenes for the lumber industry. There’s still not tons of people looking to work in the mills. You know, when we drive by in Central Oregon, some of the lumber mills and producers have signs out front paying thousands of dollars for signing bonuses and $20–$30 an hour for people to work in the lumber mills. That says that even with the reduced demand, there’s still a shortage of employees for these producers.

That’s not going to change. The demand for houses may have a short little blip because people are getting freaked out by the high prices and the higher rates, but the number of people that want a roof over their head has not changed. Nobody went from saying, “Well, I’ll sleep out in the rain.” Nobody’s saying that. Everybody wants a house. And there’s still musical chairs—there’s not enough houses to go around. The fundamentals for lumber to remain between $600 and $800 are still there.

And the proof is, all it took was a blip—11 basis points. Right? That’s like, it was at 5.8%, and it went down to 5.7%. Just a tenth of a percentage point. And because of that—boom—lumber prices surged 7%. So we expect that any time there’s any kind of strengthening or higher expectation for lumber, it’s going to bump these numbers. There was a little bit of a psychological pullback at the beginning of this year when the interest rates went up and people realized that house prices were astronomical and crazy—only compared to two or three years ago, not compared to what people are willing to pay.

Because let me tell you something—every house that was marked up $20,000, $30,000, $50,000, or $100,000 over what it was a few years ago—every one of them sold. It’s not like the houses didn’t get sold. Every one of them sold. Even now, with a shortage or with a pullback of increases and maybe some people discounting houses a little bit—every one of them is getting sold.

And there’s still a shortage of inventory. So lumber prices are going to fluctuate here and there, but it’s not an artificial bubble that’s going to pop. People still need lumber for all the things they needed it for before—building new houses, putting additions on houses. Look, the age of homes is at the oldest number it’s ever been. Back in the 70s and 80s, the age of a home was newer than it is now. Many homes were built in the 70s, 80s, and 90s. And ever since the 2008 crash, there wasn’t a huge volume of homes built.

You know, the market crashed in 2005, 2006, and 2007. Those houses were built 20 years ago. Those are 20-year-old homes. There wasn’t any big batch of houses built in the last 20 years. Sure, they built houses—but it wasn’t a big volume like there was before that. So all those houses need remodels, updates, additions, repairs—that’s all going to need lumber. Plus, we still need more inventory. Let us know what you think in the comments.