The Lumber Bubble Pop has had a significant effect on the housing market. Lumber prices have fallen by 70% in less than one year, an unprecedented event that could not be predicted. However, the bubble popping does not mean that all is lost for 2021. Here are reasons why this drop in lumber prices is good news for homebuilders and homeowners alike.
Reasons Why This Drop in Lumber Prices Is Good News
- Lumber prices are expected to return to their original rates by 2022 or 2023. However, this does not mean that the lower pricing is only temporary.
- The price reduction will make way for new technologies and advances in construction techniques once lumber prices become stable again. This could lead to several positive changes for homes across America.
- Lumber prices will likely not reach their previous peaks any time soon, which means that homebuilders can expect to see a significant increase in the affordability of housing and other construction projects for years after 2021, even if lumber prices do rise again.
- The price drop has made way for new business opportunities outside of the housing market as well. Lumber prices have dropped to such low rates that they are now cheaper than some types of paper and plastic products for industrial use. This means businesses will save a significant amount on raw materials if they switch over from traditional methods.
- The drop in lumber prices has led many economists across the nation to call 2021 "The Year of Lumber," where lumber trade will be the most important factor in deciding the housing market's future.
- Lumber prices are expected to rise again, but not by very much. This means that 2021 could be a great time for homebuilders and real estate developers alike if they choose to take advantage of their low rates now.
- Lumber prices will likely rise again, but not nearly as much or as quickly.
- This drop in lumber prices is great news for the housing market and does not signal bad things to come for the rest of 2021.
- Lumber prices are expected to return to their previous levels by 2022 at the latest, which leaves plenty of time for homebuilders and real estate developers to take advantage of lumber's low rates before they hit the roof again.
What Does the 70% Drop in Lumber Prices Mean for the Housing Market Through 2021?
The price of timber has quickly reversed its gains in the last 14 weeks, plummeting 70 percent from its all-time high in May. Now, some experts are predicting a bottom and projecting flatter prices ahead.
"Timber prices are likely to head higher, but not nearly as much or as quickly as they fell. Lumber will be strong in 2021," says Michael D'Arcy of the Linn Group.
Housing analysts are eyeing lumber closely for signs of what's ahead for home construction and sales next year, especially after a sharp slowdown in the last six months. Lumber's strength will be key, they say. At the latest, prices are expected to return to higher levels by 2022, but homebuilders could see some relief at the end of 2021 if prices hold near their current level or even rise.
To be sure, bouncing back to $1,700 per thousand board feet isn't a sure thing. Lumber prices tend to be more volatile than most other building materials. Some industry experts fear that the current route could continue if demand slips in China or supply gets too tight during peak construction seasons.
However, several sources say this is unlikely given how much lumber producers have cut their output since the U.S Lumber Coalition imposed tariffs on Canadian Lumber in early 2017. This led to spurring retaliatory duties that got lifted this year after the United States and Canada agreed to a new trade pact.
In Addition to Lumber, What Other Items Influence House Pricing?
Lumber plays a part, but it's only one factor influencing home construction costs and, therefore, overall housing affordability for buyers. The big driver is labor—the cost of finding workers qualified to do everything from framing to trim work. Lumber prices are highly volatile, so in theory, they could rise sharply in the next year or two and still not derail housing's recovery if labor costs remain low.
Moreover, Lumber makes up only about 20 percent of building a home, while labor costs make up 40-50 percent.
Why Supply Chain Disruptions Influenced The Price Of Lumber
The Lumber Trade War was the main reason why Lumber prices skyrocketed and then plummeted. Lumber producers in British Columbia, Canada imposed high tariffs on Lumber exported to America by retaliation for U.S. tariffs levied against Canadian Lumber back in 2017.
Because of this trade war, Lumber suppliers had to shut down some of their operations to reduce Lumber supply. This led to a drastic increase in the price of Lumber which lasted over a year.
The tariffs caused an average 40% rise in Lumber prices since 2017 but have now been lifted as part of new trade deals between Canada and the U.S.
Lumber prices have dropped 70% from their all-time highs. However, some analysts believe Lumber could continue to fall even further in the next few months before hitting bottom and then remaining flat or rising slightly for a brief period until they can return up to previous levels by 2022 at the latest.
Why You Should Be Excited?
The current drop in Lumber prices is excellent news for the housing market and does not signal bad things to come for the rest of 2021. Lumber prices are expected to rise again, but only by a small margin compared to what was seen before their drop. This means that homebuilders can take advantage of Lumber's low rates now when it matters most.
Lumber prices will likely rise again, but not nearly as much or as quickly. Lumber trade will be the most important factor in deciding the housing market's future.
Lumber will be strong through 2021 and this drop in lumber prices is great news for homebuilders and real estate developers alike if they choose to take advantage of their low rates now.
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