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Lumber Prices Have Shot Up Again

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EDITOR'S NOTE: While lumber futures aren’t quite at their $1,711.20 high of last summer, they are again rising to expensive eights. Last week, they closed at $1,089.10, and the current cash price of lumber is now at $915. That represents a 65% increase since October and the $129 gain this week is the biggest of all time, according to the Wall Street Journal. This is important because Fed Chairman Jerome Powell has been touting falling lumber prices as a good sign that inflation could be cooling too. Now, that isn’t the case for lumber, so is that not the case for inflation either? Also, with rates set to rise three times in 2022 and the increased cost of lumber, the red-hot housing market could cool, further smacking down the fragile U.S. economy. 

Builders are buying up wood while floods in British Columbia limit supply.

Lumber at a sawmill in British Columbia, where output has been reduced since rains washed out roads and railways. (PHOTO: JAMES MACDONALD/BLOOMBERG NEWS)

Lumber prices have shot up again in a rise reminiscent of a year ago, when high-climbing wood prices warned of the hinky supply lines and broad inflation to come.

Futures for January delivery ended Friday at $1,089.10 per thousand board feet, twice the price for a prompt delivery in mid-November.

Cash prices are way up as well. Pricing service Random Lengths said that its framing composite index, which tracks on-the-spot sales, has jumped 65% since October, to $915. A $129 gain this week was the biggest on record, eclipsing a $124 jump in May, when lumber prices crested at all-time highs.

Though lumber is traded in esoteric markets, two-by-fours became a proxy in the debate over whether inflation would fade with distance from the lockdown. In June, Federal Reserve Chairman Jerome Powell pointed to lumber prices plunging from a shocking peak as evidence that surging costs would subside. On Wednesday, he said the central bank would hasten the wind down of its bond-buying program, setting the stage for a series of interest-rate hikes meant to tame inflation.

Lumber prices have a way to go before they threaten the records set in spring, when futures hit $1,711.20. Still, lumber prices with a comma were unimaginable before the lockdown, when mills were caught off guard by do-it-yourself and home-building booms and all the decks needed to facilitate outdoor dining

Analysts and traders say conditions are ripe for prices to keep climbing through winter, as they often do ahead of the spring building season.

Flooding in British Columbia has cut off sawmills from forests and customers, unusually warm autumn weather has extended the building season and wood buyers are loading up in fear of further price increases and supply problems.

The Trans-Canada highway was flooded after rainstorms lashed British Columbia last month. (PHOTO: JENNIFER GAUTHIER/REUTERS)

The prospect of higher interest rates cooling the hot housing market also looms. Higher borrowing costs would reduce buyers’ ability to keep up with the price hikes that builders have used to offset their own increased costs. Most Fed officials have penciled in at least three quarter-percentage point rate increases next year.

“Builders think that they’re getting close to the end of a cycle and they’re doing everything they can to get houses going,” said Matt Layman, an analyst and consultant who publishes Layman’s Lumber Guide. “They know they can pay $1,500 for two-by-fours. They didn’t like it, but it didn’t hurt them.”

Random Lengths said that demand has exceeded supply, prompting sawmills to aggressively raise prices in hopes of slowing orders that are backing up into the new year. “Some producers unable to dissuade buyers with defensive pricing went off the market,” the trade publication said.

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What impact has the high price of lumber had on your building or remodeling efforts?

Sawmills in British Columbia have reduced output since rains washed out roads and railways last month, sending prices higher for the northwest’s spruce, pine and fir. Busy builders hammering away through balmy fall weather flocked to eastern markets for wood, pushing up prices around the Great Lakes and in the South.

Originally posted on Wall Street Journal.

 

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