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Why Buyers Won’t Find Relief in Lower Lumber Prices

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Building Materials

Why Buyers Won’t Find Relief in Lower Lumber Prices

July 20, 2021
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Photo: 2tun | stock.adobe.com

Homebuyers will not see lower home prices due to dropping lumber prices because it’s just one factor among many others causing builders to raise prices. The cost for steel mill products and OSB remain elevated in addition to an ongoing shortage of skilled labor and buildable lots. On top of those factors, there remains a high demand for housing. CNBC says builders have no reason to lower prices at this time. Though lumber prices are down more than 50% in the course of a few months, prices remain 100% higher than spring 2020 and there are builders still working with lumber they purchased at those heightened prices.

“As the price declines began grabbing headlines, the price of lumber packages quoted to builders held at record highs,” wrote David Logan, senior economist at the National Association of Home Builders. “In economics jargon, prices paid by builders—or ‘street’ prices—were ‘sticky.’  This dynamic is primarily due to dealers’ inventory carrying costs and potentially large differences between the price at which inventory is bought and sold.”

The price of lumber packages quoted to homebuilders is still at a record high, according to Logan. Retailers of course want to buy their product low and sell high, so they’re still selling the inventory they have at higher prices, despite what the futures market says. Also, given soaring demand and supply chain issues, their inventory is low anyway, and there is still demand, so they have no reason to lower prices. But that will change in the coming months. 

“We are still in a price discovery mode,” said Michael Goodman, director of specialty products at Sherwood Lumber, a national wholesaler and distributor in Palmer, Massachusetts. Sherwood buys from mills in North American and Europe and ships directly to its customers.

Goodman said they are just now seeing a lot more product come to the market.

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