Limit Up: Lumber Spikes To Unprecedented Level After Soaring 240% In 5 Months

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by Tyler Durden
Thursday, Aug 27, 2020 - 01:00 PM

With the Fed now desperate to hit an average of 2% inflation for the foreseeable future (it remains unclear over what period the "average" will be calculated), the price of lumber is certainly helping the US central bank, because as WKRN writes, if you are in need of lumber, then it is likely you are on a long waiting list with others.

Driven by a new housing boom (which may soon become a bubble) in single-family houses as residents of major cities flee in droves for the suburbs, demand for lumber is soaring while supply is negligible. Which - even in our time of upside down economics - means that  prices will continue to soar. For those planning to build a deck, fence or house this fall, you may want to think twice.

"They’re basically at historic levels across the bar," Chris Lewis said, Vice President of Sales at Rogers Manufacturing Corporation.

"It’s all through the roof."

No pun intended. Lewis said due to COVID-19 production at lumber mills has slowed down. Their production now sits around 60% to 70% of what it should be in relation to the demand.

“They’re all saying ‘we’re trying, we just cant,'” Lewis said in addition to high prices they are also struggling with availability issues.

Amid the onset of coronavirus lumber production slowed, and experts thought demand would drop. But instead, it soared.

“[People] are at home bored. They’re going to build an addition; fix something on their house; build a dec; redo this; or redo that,” Lewis said.

Picking up where we last looked at it, the price of lumber futures just hit a record $887.30, limit up on the session. That’s a 240% increase since the start of April.

“According to my suppliers, we’ve seen a two almost two and a half times of cost increase,” Jeff Checko said, broker with The Ashton Real Estate Group. “You’re going to see impact in the delivered asking prices from builders and quoted pricing for custom homes and home renovation projects.”

The recent spike is causing the price of an average new single-family home to increase by $16,000 since late April, according to the National Association of Home Builders.

“These builders that have these houses for $350,000-$550,000 – now instead of paying $30,000-$40,000 for their framing package – they’re spending $75,000-$90,000 for their framing package. So, when does that kill the deal?” Lewis asked.

Unfortunately, Lewis doesn’t see anything changing anytime soon. Unless, demand drops and supply grows. If prices continue to rise, Lewis said it may be hard for customers to find lumber on store shelves.

“We have problems pricing something because we don’t know where our cost will be next week,” Lewis said. “When does it stop, where is the top.”