Lumber futures are sliding after a brief pop last week, falling 21% in the last five days as the hot commodity comes down from dizzying highs.
The price of lumber is trading at $642 per thousand board feet, roughly 62% lower from its May 7 peak of $1,670 per thousand board feet.
But the downtrend after scaling to unprecedented highs should be expected, said Troy Merkel, partner and senior real estate analyst at Chicago-based consulting firm RSM. He said he expects the price of the commodity to moderate, especially as supply chains normalize and recover after the last year of the pandemic.
By the end of August and into early September, he told Insider the price of lumber may settle between $350-$450 per thousand board feet due to a confluence of factors, including sawmills slowly reopening and vaccination rates rising.
And while Merkel still sees headwinds for the industry, especially when it comes to labor, he said he is optimistic the market will normalize by the end of the year.
Experts, including Merkel, have long sounded the alarm of a chronic shortage of affordable and available homes in the US.
“People took for granted the prices of lumber,” Merkel told Insider.
The spike in the price of lumber on its own has added $36,000 to the average price of a new home, according to the National Association of Home Builders.
A June 2021 report by the Rosen Consulting Group, a real estate economics consulting firm, found that more than two million housing units need to be built per year in the next decade in order to fill an underbuilding gap of at least 5.5 million housing units.
Homebuilding would need to accelerate to a pace that is well above the current trend, the study said.
But for some, like David Russell, VP of market intelligence at TradeStation Group, an online broker-dealer, the whole market “distortion” of lumber was an aberration caused by the pandemic.
“I think in some ways lumber is really just toilet paper, 2.0. It’s just a symptom of a totally weird situation that has almost never happened in history,” he told Insider. “This recession was caused by something totally external.”
Russell said prices will normalize by the end of the year, though he does not think they will return to pre-pandemic level.
“The likelihood of this happening again is very low,” he said. “This happened exactly because no one thought it was going to happen.”
A number of commodities have surged in part because of distorted supply chains during the pandemic, but lumber in particular has captured people’s attention. When asked why people have been focused on lumber over other commodities, Merkel said: “At the end of the day, people need a place to live. Housing has a personal feel, whether you’re an analyst or a prospective homebuyer.”