Lumber prices are falling. Could prices in the housing market follow?

Lumber prices are lower, but there's still a lack of it that continues to add to the US' housing shortage. Will the White House bring some relief?

  • Lumber has seen a dramatic decline in price despite its scarcity.
  • There is still not enough lumber to meet demands for new housing.
  • Lumber is crucial to the U.S. because nine out of 10 new single-family homes built are wood-framed.

Lumber prices and supply have taken investors, contractors and consumers for a ride since 2020. 

Erratic inventory and construction labor shortages combined with a Canadian lumber tariff to spike lumber prices as the nation's appetite for new housing remains high. 

Lumber is crucial as 9 out of 10 single-family homes built in the USA are wood-framed, said the National Association of Home Builders (NAHB), a Washington-based trade group.

Experts wonder if there will be enough lumber supply to meet demand – and whether Americans can afford it.

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"We can expect first-generation homebuyers who don't have the equity built from another home and renters, particularly in dense markets, (to be) priced out," NAHB Chief Economist RobertDietz said. "Where do those people go?"

Is there a shortage of lumber?

Yes, there's a lumber shortage in the USA, which relies heavily on Canadian imports, Dietz said. 

When COVID-19 hit, sawmills slowed down, anticipating low demand. But housing needs increased during the pandemic, and the mills "did not ramp up production accordingly," the NAHB said.

Stinson Dean, CEO of Deacon Lumber in Kansas City, Missouri, said the USA doesn’t have enough lumber to build the 2 million homes he estimates the nation needs. 

Moody's Analytics projects the U.S. shortfall is about 1.5 million homes, fueling a spike in sales and rental prices.

Lumber for a typical single-family home ranges from $30,000 to $40,000 and about $10,000 per apartment unit, Dietz said.

Why are lumber prices so high?  

Contributing factors include "high demand in the housing market, bottlenecks in the supply chain and labor shortages," said Jonathan Paine, longtime president and CEO of the National Lumber & Building Material Dealers Association, a Washington-based lobbyist group. 

Last year, the Biden administration doubled the tariffs on Canadian lumber imports from 9% to 17.9%, Dietz said.  A reduction to 11.64% could come in August. 

Are lumber prices coming down?

Yes. Lumber prices fell as low as $780 per thousand board feet in May and are trading below $600 per thousand board feet, according to Chicago Mercantile Exchange. That's the lowest point for lumber this year – but still higher than the 2020 high of $400 per thousand board feet.

Three months ago, lumber traded for as much as $1,357 per thousand board feet, not far from its peak price of $1,733 about this time a year ago, according to business data website Statista

Paine expects lumber's price volatility to continue. 

Could lower lumber prices affect housing market prices?

Savings from lower lumber prices could reach consumers.

Last month, President Joe Biden announced a plan to spur the supply of affordable housing amid a 40-year-high inflation rate. He hopes to close the "housing supply gap" within five years.

Follow Terry Collins on Twitter: @terryscollins