3 factors will keep lumber prices elevated despite a multi-week decline, an economist says

• As the price of lumber stabilizes, more bouts of volatility lie ahead, said Dustin Jalbert of Fastmarkets.
• Jalbert, a senior economist, cited three factors: wildfires, log prices, and housing demand.
• Lumber prices he said have been in a "correction mode" for nearly two months as supply catches up with demand.
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Prices for lumber futures have dipped to their lowest in seven months after a record-breaking run since the middle of 2021.

The price of the red-hot commodity traded at $524.70 per thousand board feet as of Monday at 12:40 p.m. ET, roughly 68% lower from its May 7 peak of $1,670 per thousand board feet.

But as the price of lumber stabilizes and looks to settle back into its pre-pandemic level, more bouts of volatility lie ahead, according to Dustin Jalbert, senior economist at Fastmarkets, a price reporting agency for global commodities.

"Lumber prices in the cash market have been in a correction mode for nearly two months now as supply is finally catching up with demand," Jalbert said.

But the senior economist did warn of three factors that will keep lumber prices elevated despite the price cratering closer to historical norms.

1. Raging wildfires

Various data, including figures from the US National Drought Mitigation Center, show that the western part of the US is at its driest in 20 years - and yet the hottest months are still ahead. Extreme heat and drought could foreshadow another devastating fire season, which could cripple the supply chain for the wood industry. Last year's fires burned a record four million acres in California, one million in Oregon, and at least 713,000 in Washington.

2. Log prices

The US Commerce Department in May recommended more than doubling the tariffs on Canadian lumber despite a meteoric rise in prices and demand. The proposed rates are subject to further review before final duties are set in November.

Many experts claimed the move will make housing less affordable for Americans and hinder economic recovery. Half of the major producers of lumber in North America are located in British Columbia, and the US imports roughly 50% of their output.

3) Housing demand

While sales of new and previously owned homes have slowed from their fall peaks, both still sit well above pre-pandemic levels. Additionally, the DIY boom that characterized household spending during the pandemic still remains elevated, though it is showing signs of easing.

"New construction remains strong in the US and Canada, but we are seeing signs that builders are throttling construction given the unprecedented shortage of essential building materials, even beyond wood products," Jalbert said.

Home prices had already been on the rise, and reached a boiling point during the pandemic. Data from Freddie Mac shows that supply for entry-level homes sits at a 50-year low.