Lumber futures on Chicago Mercantile Exchange plunged more than 40% in June, suffering the worst ever monthly decline on record dating back to 1978. Prices are down 18% in 2021 and recorded the first negative first half since 2015.
Lumber peaked in late April/early May at around $1,711 per thousand board feet, and as of Thursday morning, prices are down more than 4% to $684. It appears the great lumber bubble of 2021 has encountered a classic commodity blowoff top, down -60% from the highs.
Readers may recall we've been closely following the lumber bubble:
- Lumber Hasn't Had A Down Day Since March 26... And It's Sending Home Prices Soaring Even Higher
- "There Is No Shortage?" Train Loads Of Lumber Stacked As Far As The Eye Can See
- Lumber Industry Has No Interest In New Mills As They Reap Rewards Of Record Prices
- Lumber Prices Slump As Historic Boom Hits A Wall
The latest drop in prices "suggests that the cause of that inflation—the mismatch of supply and demand—will not last forever," said Brad McMillan, CIO at Commonwealth Financial Network. "As suppliers across industries get their acts together, those shortages will fade, along with the inflation. That looks to be happening for lumber now and will happen for other inputs later."
Goldman Sachs' commodity analysts told clients Tuesday that consumer hesitancy around record-high prices resulted in a sticker shock, and some home improvement projects were delayed.
Weakness in lumber prices in the second half could offer relief for homebuilders who've been stunned by skyrocketing costs. The latest housing report showed May permits plunged to the lowest level since October. The chart below suggests surging costs are halting new construction.
"It was a bubble, but it is still double where it was pre-Covid," said Peter Boockvar, CIO at Bleakley Advisory Group. He believes the lumber bubble might have burst, but prices may remain elevated, suggesting the inflation threat may still linger.
Boockvar could be right. The new normal for lumber prices may remain doubled from pre-COVID levels. The term structure of lumber futures is an utter shitshow, but prices do appear to remain much higher than 2019 levels.
BMO Capital Markets' commodity desk also agrees that prices may not return to pre-pandemic levels any time soon.