50% PRICE PLUNGE! DEFLATION!
Lumber prices today dropped below $700.....which is an over 50% plunge from a year ago when lumber prices were over $1,400.....have you heard anyone talking about deflation?
After massive surges - fueled by artificially high demand, re-charged production, weak under-estimated inventory levels, temporary supply chain disruptions due to COVID and weather, speculation, etc - corrections often follow. Lumber - a critically important building material - is a perfect example of how COVID and other shock events triggered massive price escalations....now followed by almost equally impressive declines. At the end of the day, pricing is mostly determined by supply and demand. And the demand for lumber surged post COVID lockdowns in 2020 as the world recognized more vocally that the US had been under-building - by millions - for over a decade. The demand for housing is here to stay for many years to come.
Lumber is a critically important component for building homes. Big tariffs enacted on imported lumber in 2018 did not help make housing more affordable.....by the end of 2020 they had been reduced but were recently raised again, although lower than 2018. Now is the time to remove these tariffs, at least for a 2-3 year period till building catches up with demand.
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While lumber prices are down sharply, they are still higher than they were 5 years ago. Not unlike New York rents, percentage increases and decreases should always be viewed in a broader context, not simply the cheesy attention grabbing headline as seen above.....
Yes, Higher interest rates will more than likely slow the (sometimes) insane price escalations of homes, especially in some areas where new demand fueled pricing even further, not to mention the all-cash i-buyers and private equity entities amassing single families to rent out....at rising rents! But rising rates alone won't make housing more affordable. This requires a multi-prong, concerted effort. Reducing the cost of lumber is just one thing that could help. Remove the Tariffs. Now.