When considering March lumber market trends, it’s important to note that the lumber market has been in a state of extreme volatility in recent years. From the start of the COVID-19 pandemic in 2020, lumber prices have skyrocketed to record highs, followed by a sharp decline in mid-2021, and a subsequent rebound in late 2021 and early 2022. These fluctuations have had a significant impact on the construction industry and the broader economy, leaving many wondering about the current state of the lumber market.
Impact of the Pandemic
The surge in lumber prices can be attributed to a combination of factors. Firstly, the pandemic has led to a surge in demand for housing as people seek to leave densely populated areas and move to more spacious homes in suburban or rural areas. This has led to an increase in construction activity and, subsequently, a rise in demand for lumber.
At the same time, the pandemic has disrupted the global supply chain, leading to shortages and delays in shipping and production. Sawmills were also forced to reduce production due to safety measures implemented to prevent the spread of the virus, exacerbating the supply-demand imbalance.
Spread of Wildfires
Furthermore, the wildfires that ravaged parts of the western United States and Canada in 2020 and 2021 caused significant damage to timberland and reduced the available supply of lumber. The damage from these fires is expected to have a long-term impact on the industry, with some experts predicting that it could take several years for the affected areas to fully recover.
The result of these factors was a surge in lumber prices, with the cost of lumber increasing by over 300% from April 2020 to May 2021. This increase had a significant impact on the construction industry, with many builders reporting that the high cost of lumber was making projects prohibitively expensive. Homeowners were also affected, with the cost of new home construction and home renovations increasing significantly.
The Unpredictable Market Continues
However, by mid-2021, lumber prices began to fall, and by September 2021, they had dropped to pre-pandemic levels. The decline was due in part to a slowdown in demand for lumber as the housing market began to cool off and supply began to catch up with demand.
The drop in prices was short-lived, however, as the lumber market rebounded in late 2021 and early 2022. Prices once again began to climb, reaching levels that were higher than those seen during the initial surge in 2020 and 2021. The rebound was attributed to a combination of factors, including a resurgence in demand for housing, supply chain disruptions, and transportation bottlenecks.
Where We Are Now-March Lumber Market Trends
As of March 2023, lumber prices are lower than they were in January or February, but we will never know how things will change in what appears to be a somewhat “sloppy” market.
According to internationally acclaimed economist Elliot Eisenburg, home sales eased for the 12th straight month in January, which is the longest streak of monthly declines since 1999. The NAHB also recently published data showing a steady increase in singly family sales between December and February. When we look at housing startups, we’re seeing that permits and starts are currently down, but we’re seeing an increase during late 2023 that we’re hoping will boom in 2024.
Zonda recently published data that further contextualizes our market. According to Zonda, 42% of homes are currently owned free and clear, which is the highest historical number we’ve seen to date. Additionally, many of these existing homes that we would usually see on the market are not due to high interest rates, which leaves many homeowners sitting on the sidelines. Zonda is anticipating interest rates to drop over the next few years, hopefully returning to rates between 3.5-5.5% which will increase buyer confidence. While interest rates are still currently high, we are seeing that buyers are becoming more open to the refinancing option with the hope of interest rates lowering in the next few years.
Builder confidence has also increased over the last month. We believe this is partially due to the lack of inventory currently available. In fact, there are currently 6.5 million units underdeveloped nationwide. We have an increased demand for housing, but prices remain high. However, eventually, there is a desire to purchase homes, which means eventually these houses will be filled, which is exciting for builders.
In conclusion, the lumber market remains volatile and unpredictable. While there have been some signs of stabilization, the industry is still grappling with significant challenges that are likely to persist for the foreseeable future. Builders, homeowners, and other stakeholders in the construction industry will need to remain vigilant and flexible to adapt to the changing landscape of the lumber market.