Over the last year, you may have heard this sentence time and time again – “Lumber is too high right now!” or “I’ll just wait to start this project once the price of wood goes down.”, but what does this mean and what are they referring to?
This is a chart of lumber prices from Jan 2020 (pre-pandemic) to now, July 2021. It measures lumber prices in “price per board foot”. At its highest this past May, we sat at $1645 (a 300% increase since Jan ’20!) . Today, we sit at $685. While this is nearly a 60% decrease from our recent all time highs, we still are ~65% higher than our initial starting point in Jan ’20, which was $403. However, this is a good downward trend as we have been decreasing in price for about 8-10 weeks straight (Source).
Local Impact
Price action effects always seem to hit us in West Alabama (Tuscaloosa County) close to last. So I interpret this as within a few weeks, we will see lumber prices begin to update here as well, which will drive new construction (NC) that was on hold to begin to being constructed. Builders (assuming the laws of economics are still applicable) will be able to compete better on prices and provide more NC homes at affordable prices, which will slow down the parabolical increases in existing home sales prices that we’ve seen over the past 12-16 months.
A good way to understand this better is to take a look at the used car market and its situation currently. The primary reason why if you bought a new vehicle in the last 2-3 years and can sell it now for more than what its worth AND what you paid for it is because of the car computer chip shortage. Now that the shortage is being estimated to end shortly, used car prices will fall back to its original price trend, which is downward.
WHAT DOES THIS MEAN TO YOU, AS A CONSUMER
Sellers:
We may begin to see prices beginning to pullback. I do believe that there is still a chance to get the most out of your home as possible, but we’ve already been noticing this pullback in little ways (nothing that is conclusive although). I would share this information with your friends, family, co-workers, and anyone you know who has considered selling or refinancing their home. This almost 16-month volatility in upwards price movement may soon come to an end and that if they still want to capture the most of their equity as possible, then this may be one of there last chances.
Buyers:
As a buyer, you may feel incentivized to wait until prices correct – in order to take advantage of higher supply, thus lower overall cost to entry. However, the data is still inconclusive as to how the price action truly will affect our local market. Prices could as easily stay along the same price trend, in contrast to its potential to move downwards. The Federal Reserve (the institution in control of the money supply, interest rates, etc.) also could play a role in your ability to qualify and afford a home. Inflation fears may lead the Fed to decreasing the money supply, which would increase interest rates, making it harder for you to buy. We currently have historical low interest rates and by locking in a low rate as well as a home in an appreciating area, would set you up for financial success in the event that inflation truly is here to stay.