Why Lumber Futures are a False Positive

Why Lumber futures are a False Positive Vlog Transcript

       Hi folks, Builder Tom here, and I’m back to talk about… lumber!  People are so excited: Lumber prices are going down!  And if lumber prices going down, home prices are sure to follow, right?  Wrong.

      Folks, I’m sorry to say it doesn’t work that way.  The publicity you are hearing is about lumber futures, which is different than the price of lumber sitting in your local lumberyard. 

      Lumber futures have gone down, but it’s important to know that their focus is on dimensional lumber like 2X4’s.  They don’t include wood panels like plywood, nor do they include laminated structural components like LVL’s.  Sad to say, but these materials, controlled by a handful of national manufacturers, are not going down in price. 

      Lumber futures are commodity traders’ best guesses about future economic conditions.  In the meantime, actual lumber prices are determined by current supply and demand conditions and those challenges still exist.

      Even as housing demand moderates, supply chain issues are still a huge concern.  Lumber gets all the publicity, but I’m not exaggerating when I say that every material that goes into the homes we build has experienced supply and pricing issues.

      When is this all going to get straightened out?  Your guess is as good as mine or Jerome Powell’s, Chairman of the Federal Reserve.  He sees the lower lumber futures helping keep inflation under wraps.  Mr. Powell is a smart guy, but it appears that what he doesn’t see is the disconnect between lumber futures and what Bickimer Homes pays for lumber.

      Here’s what you should know:  When supply chains are finally normalized prices will stabilize, but in the housing industry it’s extremely doubtful prices will return to pre-Covid levels.  There are too many mitigating circumstances, not the least of which is a chronic labor shortage and this sobering statistic:  our country faces a shortage of 3.8 million single-family homes.

      So, what to do?  If you’ve been waiting for new home prices to come down, stop waiting.  There is one important factor that argues for doing something now:  Interest rates continue to trend at historic lows, but that window of opportunity is closing.  Low interest rates level the affordability playing field.  They are your hedge against an uncertain future and the best opportunity to own your family’s dream home.