Lumber Prices Drop 21% in Five Days—When Will it Normalize?

In just five days, the price of lumber fell 21% to $642 per thousand board feet. Lumber prices hit a record high on May 7 at the price of $1,670 per thousand board feet. Prices are a whopping 62% lower than that high, and one real estate analyst says the price will continue to moderate as supply chains normalize. The analyst told Business Insider that prices could fall between $350 and $450 per thousand board feet as sawmills reopen and more Americans receive COVID-19 vaccinations. These factors will calm the highly competitive housing market overall, says the analyst.

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.

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