Lumber’s Spectacular Price Crash Could Be Good News For Home Buyers

DANIEL WONG (BETTER DWELLING) - Lumber prices continue to spiral lower, and that might be a good thing for home prices. The commodity surged throughout the pandemic, hitting an absurd high in May. Since then, prices have plummeted back to reality at a rapid pace, wiping out all of this year’s gains. This can result in a huge discount for lumber, which has contributed to soaring home prices.

Lumber Prices Have Wiped Out All Of 2021’S Gains 
The price of lumber has cratered recently, losing all of this year’s gains. Spruce-pine-fir (SPF) lumber closed at $506.10/mbf today, down 20.2% from a month ago. The price has fallen 37.5% from a year ago, more than reversing the gains made this year. As big as that decline is, it’s nothing compared to the drop seen from the peak just a few months ago. 

Lumber Prices Are Down 69% From Peak, Cheaper Than 2018
Just a few months ago people thought lumber prices would soar forever. They weren’t just a little wrong about that. Lumber prices peaked at $1,668/mbf on May 7, 2021, and have since dropped 69.7% since then. Niiice. 
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SPF Lumber Price
The closing price for SPF random length lumber.

​Not quite to the price it was immediately before the pandemic, but it was more expensive just a few years ago. Back in 2018, lumber prices reached a high of $624/mbf, and prices are now 18.9% lower. This decline can turn into a huge benefit for homebuyers in the future.

Lumber Costs For The Average New Home Over $11,000 Cheaper Than Last Year
Building a home involves a lot of lumber, and the drop in prices is good news for home buyers. At the $1,600 peak, the rise in prices added ~US$47,800 to the cost of building a home. These costs are largely just passed onto consumers, pushing new home prices higher. It’s not just new buyers either. Pre-construction buyers from years ago have had to pay more to have their homes completed. 

At today’s price, the contribution to home prices should be negative compared to last year. The average home should see a discount of US$11,700 in lumber costs compared to a year ago. Though surging inflation might consume a lot of that discount if it doesn’t prove to be transitory. 
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Does the drop bring in more buyers for support at this level? Or will commercial buyers listen to lumber execs, and wait for potentially cheaper lumber next year.