The ‘Lumber Bubble’ May Have Just Burst

Logs of wood

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Since the pandemic, lumber prices have skyrocketed to record highs, adding to new-home construction costs. But prices are now coming down. Lumber prices have fallen 12% this week, reaching a new low in 2022.

That could be welcome news for new-home buyers and builders. Over the past year alone, the swings in lumber prices have prompted the price of a new single-family home to rise by more than $18,600, according to the National Association of Home Builders.

In the last three months, lumber prices have started to come down as the housing market shows signs of slowing and interest rates rise. A glut is forming in the lumber market as inventories begin to pile up. Lumber buyers have slowed their orders, and sawmills are beginning to slash their prices, The Wall Street Journal reports.

Lumber prices have fallen 47% year to date. They are down 65% from a 2021 record high of $1,733 per thousand board feet. The big drops should help ease inflationary pressures in the housing market, and the costs to build should come down, Markets Insider reports.

Dustin Jalbert, a senior economist who leads Fastmarkets RISI’s lumber team, told Fortune that lumber’s volatile cycles in recent years is likely over—unless an unforeseen economic crisis erupts. “I think the worst is behind us now,” Jalbert told Fortune. But he says there’s a lot of “concern” about what lumber demand will look like in the second half of the year as recession predictions grow.

There’s still a backlog in fulfilling demand and supply issues—which triggered the record prices in the first place. Producers are focused on getting through their current commitments, which should lead to lower futures prices moving forward, Kyle Little, chief operating officer at Sherwood Lumber, told Fortune.

Lumber prices will likely moderate to between $450 to $600, but they won’t collapse, Jalbert told Fortune. Also, “there’s still decent underlying demand that will support housing construction,” he adds.