Lumber Prices March 2022

Why Lumber Prices had a Steady Decline in March 2022

To say that lumber prices have been highly volatile over the last 11 months would be a bit of an understatement. The reality is that prices have been on somewhat of a rollercoaster ride since the middle of May in 2021.

On May 7th of 2021, lumber prices reached an all-time high at $1,686 per board square foot. By November of 2021, lumber prices dropped by an amazing 312% to $540 per board square foot. From that point, it was like prices hit a trampoline bouncing too as high as $1,464 on March 2, 2022. That in itself was an increase of 271%.

There were a lot of things that have been contributing to this volatility. Among the factors that have been playing a role are:

  • Weather conditions in Canada and the great Northwest
  • Supply chain issues
  • A drying of housing demand in states like California and New York
  • An increase in housing demand in other states where the people from New York and California relocated to
  • Overall inflation in the U.S. and most other parts of the world

At recent highs, industry experts were left wondering whether or not the current price trends were going to lead lumber prices to new all-time highs. No sooner than the discussion of this possibility started, lumber prices took yet another massive plunge.

Why Lumber Prices were on a Steady Decline in March 2022

By April 1, 2022, lumber prices had fallen to $965 per board square foot. That's a drop of 34% in just under 30 days of trading. When the price of anything drops so far so fast, there needs to be a conversation about what might be driving the trend.

A quick look at what is going on around lumber prices shows that the driver of the current price decrease is directly related to what is going on in the U.S. economy. The three things we want to look at are:

  • Rising interest rates
  • A sudden drop in housing demand due to a population shift
  • World uncertainty

Note: All three of these factors are separate yet interrelated. Let's take a look at these three things in more depth.

Rising Interest Rates

For close to a decade, interest rates had been held low by the U.S. Federal Reserve while the U.S. economy strolled along without any fears of inflation. Unfortunately, the COVID19 pandemic hit, and the U.S. Congress decided they would stimulate the economy by infusing trillions of dollars in stimulus payments into the pockets of almost everyone living in the U.S.

After three rounds of stimulus payments and corporate bailouts, it was just a matter of time before inflation was going to come calling. It took a couple of years but by the time the Biden Administration passed its "American Rescue Plan Act of 2021" in February of 2021, the fires of inflation had already been sufficiently stoked.

Over the last six months, inflation has been on the rise, reaching over an annualized rate of 7% by February of 2022. According to some economists, the real inflation rate is really closer to 11% if gas prices are adequately weighted in the calculation. That's the highest rate of inflation the U.S. has seen in 40 years. Currently there doesn't appear to be an easy off-ramp on this road to even higher inflation.

It took the Federal Reserve a while to react, but they have finally concluded that interest rates will need to rise to keep inflation from going higher. Recently, U.S. Treasury Secretary Janet Yellen stated that the Fed would likely increase interest rates in smaller increments as a control measure to try to prevent the U.S. economy from falling into a recession. How does this affect lumber prices?

With the promise of higher interest rates by summer, new home prices and demand are already starting to fall.

After robust new home sales throughout most of the pandemic, prices and demand have fallen for two consecutive months for the first in several years. That signals a drying up of demand for housing. With high prices and the promise of higher interest rates, U.S. homebuyers are very likely to take to the and stay on the sidelines in the near term.


New Home Sales
New Home Sales


Further complicating the falling demand for new housing is the likelihood that a lot of U.S. homeowners are starting to cash in on their massive home valuation increases. We are starting to see a big increase in the housing resale market, which is going to negatively impact the demand for new housing.

In conclusion, demand for lumber is declining in reaction to higher interest rates and lower new housing demand. If this were the only factor that was currently influencing lumber prices, we would conclude that prices should continue a downward spiral all the way through summertime.

A Sudden Drop in Housing Demand Due to a Population Shift

We wanted to mention a little bit more about the drop in housing demand from a different perspective. As we referenced above, there is an ongoing population shift in the U.S. Recent trends indicate that a massive portion of the U.S. population is leaving more expensive states like California, Illinois, and New York in favor of more affordable states like Ohio, Florida, and Texas.

Initially, the demand for new housing in these states was high enough to offset the lowering of demand in California, Illinois, and New York. However, some of the more affordable states have suddenly become expensive because housing prices started ramping up much higher than expected. This has resulted in a drying up of demand while potential homebuyers take to the sidelines as renters. Many folks are intent on renting until housing prices become more stable and interest rates settle back down.

Of course, the lower demand is resulting in lower demand for lumber. The reaction has been sudden and significant for the housing development industry, which finds itself now competing with a resale market that didn't exist a few years ago. This very factor assures lumber prices will likely keep dropping until homebuilders see an opportunity to increase their lumber inventories when prices reach appropriate lower levels. As a general guideline, it would seem the market is going to react much like it did in October and November of 2021. That puts a target price on lumber of about $600 to $700 per board square foot.

World Uncertainty

Uncertainty will always drive consumers to the sidelines. That is particularly true of homebuyers and people who are interested in doing a little remodeling work around the home. With the current amount of uncertainty the world is facing today, the demand for lumber will be adversely affected until developers and private consumers decide it's safe to "go back into the water."

From where is this uncertainty coming? One would have to be living in a cave to not see what is going on all over the world. It's not just a matter of seeing it. The fact is that world events are impacting the lives of everyone in the world, especially Americans who are not used to so much uncertainty at one time.

Here are a few factors that are creating all of this uncertainty:

  • Runaway inflation rates that are negatively impacting the bank accounts of every American
  • The battle over energy costs
  • The ongoing battle against a seemingly endless string of COVID variants
  • The war in Ukraine between Ukrainians and Russia has the world on edge over threats of nuclear war
  • The political environment in the U.S. has become very unsettling because of the power struggle between progressives and conservatives
  • Crime rates are increasing at an alarming rate in major cities all over the country. The general feeling is Americans don't feel safe anymore
  • Concerns over what kids are being taught in school
  • Ongoing supply chain issues that are leaving big box store shelves empty

Any single one of the items on this list would be enough to cause many Americans to proceed with caution in terms of their buying habits. When getting hit with all of these items at the same time, we have reached uncharted territory.

Clearly, it is understandable why people might be holding off on expenditures for DIY home projects and the purchase of a new home. That accounts for the recent drop in lumber prices.

Lumber Price Projections Over the Next Six Month

After a year of lumber price volatility, it would be nice to see prices settle and stabilize for a while. If that were to happen, where would the price point end up being?

For now, the trend in lumber prices is headed in a downward spiral. Even more alarming is the momentum with which prices are dropping.

Since the U.S. new home market tends to drive lumber prices, there is no reason to believe that prices will stop dropping any time soon. Right now, the demand for new housing is not there.

We are looking at a scenario where prices will drop to a point where homebuilders feel comfortable buying and creating an inventory for future development projects. Each time that happens, there might be a slight surge in prices until developers get uncomfortable. Again, lumber prices might find support at about $600 per board square foot. This scenario is likely to continue over the next six months at which time we can see if things are getting worse or changing for the better.

What Now

If you are a business owner who sells B-Grade or Downfall OSB & Plywood contact us today for the best pricing in the industry. We also sell many off-color & discontinued flooring, siding, surplus materials, and fixtures for major construction projects. Click Here to see how Silvaris can help you.

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