In stark contrast to the home-building and home improvement boom seen in the past year, the North American housing scene is entering a state of equilibrium – and, consequently, lumber prices have hit a plateau. As a result, prices may stay within the $500 to $600 per thousand feet price range over the next couple of years. 

According to Mace McCain, Frost Investment Advisors CIO, lumber prices have bottomed, but he doesn’t expect them to bounce back anytime soon. Indeed, he sees a relatively small percentage of growth – just 15% above current rates – over the next 24 months.

He is quick to say that lumber has gone into equilibrium because the industry is now out of what he calls “the extremes.” “We’re done panic buying and the big industry shortages are over,” he explains. “So we’re going to see [some] stabilization.”

What factors are affecting lumber prices? 

There are two factors that have impacted lumber prices. The housing shortage currently gripping the United States is one of them. While this is traditionally a factor that is beneficial for lumber prices, the high – and sometimes outrageous – prices demanded for US real estate have made many potential home buyers. Consequently, builders put off their plans for construction or renovation. In turn, this has significantly reduced the demand for lumber.

Second, prices are also being pulled down by the Federal Reserve’s current push for an interest rate hike. As McCain puts it, the Federal Reserve may not go at it aggressively, but {it will soften [the] real estate market, though I don’t think it will destroy the mortgage market.”

Lumber futures dropped by 5% as trading ended on Wednesday, August 11th, closing at $502.30 per thousand board feet. The figure is 70% lower than the industry’s record high earlier this year when futures hit $1,711 in May. At the time, lumber prices soared by over 500% when a sudden increase in the number of homebuilders surged despite numerous supply chain disruptions caused by regional lockdowns.

But McCain is optimistic that the emergence of the highly virulent Delta variant won’t cause another halt in sawmill operations like the one last year triggered by the initial wave of COVID outbreaks. As he puts it, it is highly unlikely that the American lumber industry will undergo another full shut-down. “I think [sawmills and lumber camps] have learned how to cope with it,” he opines. “We won’t be seeing any supply barriers [this time.]”