With Lumber Prices Falling, Will Home Prices Follow?

July 19, 2021

After exploding to new highs this spring, lumber prices have fallen to levels nearing their pre-pandemic norm. Prices for two-by-fours jumped in May to more than double their previous records, but have since retreated nearly 70%. Actively traded lumber futures have settled to levels below their pre-pandemic high.

However, just because the cost of goods purchased by homebuilders has fallen does not mean buyers should expect to reap these lower costs. The Wall Street Journal notes that it is typical for companies to collect higher profit margins rather than drop prices after a period of rising commodity costs. With the housing market still so competitive, higher prices are likely to persist, even as lumber costs recede. Analysts say that profit margins for homebuilders are already at their highest levels since 2006.

While this is bad news for potential homebuyers, do-it-yourselfers are likely to benefit from falling lumber prices, as retailers like Home Depot have already begun dropping prices for lumber in recent weeks.

The drop in prices is also potentially good news for renters, as a number of multi-family dwelling construction projects were put on hold during the price surge. Developers of housing subdivisions can pace construction as material costs and availability change, but the builders of large apartment buildings order wood by the boxcar all at once. When prices rose steeply, builders had no choice but to delay construction until costs fell back within their budget.

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