- The price of lumber is not going back to pre-pandemic levels, Mace McCain, CIO at Frost Investment Advisors said.
- The commodity will continue to see a sustained 5% rate increase next year, he said.
- "We are past delta peak," he noted. "The price has stabilized."
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The price of lumber is not going back to levels seen before the pandemic and will continue to see a steady increase in the next few years, according to Mace McCain, chief investment officer at Frost Investment Advisors.
"We are going to have sustained demand," he told Insider.
McCain said the trendline for lumber will see a sustained 5% rate increase, folding in transportation and labor costs as well as inflationary pressures.
Lumber futures rose 4.86% on Wednesday, to $646 per thousand board feet. They're currently 62% below their record high of $1,711 reached in May of this year. In November 2020, lumber futures were trading at $526 per thousand board feet.
"We are past delta peak," McCain said, pointing to the ADP's monthly jobs report released Wednesday. "The price has stabilized."
The US private sector added more jobs than expected in October, signaling much stronger job growth after months of dismal recovery. Private payrolls rose by 571,000 last month, ADP said in its monthly employment report, marking the strongest one-month gain since June.
"We're in the next recovery phase economy, there are more workers being employed and going back to work, and that is going to help the supplier lumber," McCain told Insider. "There will be more mills open and we're going to see more lumber become available."
Despite the encouraging news, the US economy, he said, will continue to see persistent labor and supply shortages, on top of the constant demand brought on by the housing crisis. This is why he says lumber will be a good hedge against inflation.
"We think that the pricing will be resilient in lumber over the next several years," he told Insider. "It's one of the commodities I think that will inflate because of the continued demand."
The price of lumber has skyrocketed this year as the COVID-19 outbreak continued to disrupt supply-chains amid renewed acceleration in homebuilder activity.
The integral homebuilding material is a key building block of the US economy, and its rising prices have helped push up inflation to 30-year highs, alongside a surge in energy prices, like oil and natural gas, and a new jump in used car prices.
On Wednesday, the Federal Reserve said it would begin tapering its asset purchases later in November after deploying unprecedented economic support for 20 months.