Lumber Prices Are Beginning to Surge Again

December 20, 2021

After retreating from meteoric highs earlier in the year, lumber prices are surging again giving some homebuilders déjà vu for late last year when skyrocketing prices presaged supply chains disruptions and broad inflation.

Futures for January delivery are more than twice the price for delivery in mid-November, and prices on Random Lengths’ framing composite index have jumped more than 65% since October. The index was up $129 last week. This is the biggest increase on record, surpassing the previous record set in May when lumber prices reached an all-time high.

Lumber prices have become something of a bellwether in the larger discussion about inflation, with even Federal Reserve Chairman Jerome Powell citing lumber’s quick retreat from its peak in June as evidence that higher prices would subside as the economic recovery progressed.

Lumber prices would have to increase substantially before reaching the records set earlier this year, but analysts warn that prices are likely to keep climbing. Flooding in Canada has limited production at sawmills, and an unusually warm fall has extended the building season.

Interest rate increases on the horizon are also expected to cool the housing market somewhat, prompting homebuilders to accelerate construction. Increased mortgage rates next year would make it harder for buyers to keep up with the higher prices that builders are charging to cover their own increased costs. The Commerce Department said that construction began 1.679 million homes in November, at a seasonally adjusted annual rate. That is a 12% increase from October and the biggest monthly total since March.

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