Are Lumber Prices Going to Go Down in 2024?

Are Lumber Prices Going to Go Down in 2024?

Two-thirds of U.S. lumber consumption can be attributed to new home construction and home improvement projects, according to CAIA Association. Volatility has defined the lumber market since 2020, but some stability returned in 2023.

Two-thirds of US lumber consumption can be attributed to new home construction and home improvement projects, according to CAIA Association. Volatility has defined the lumber market since 2020, but some stability returned in 2023.

The polarity between lumber supply and demand caused unprecedented challenges in building material availability, construction activity, and pricing. Since January 2020, lumber prices grew about 35% (137 MFBM), Trading Economics reported.

During the height of the COVID-19 pandemic, demand was surging as individuals found themselves with more time on their hands to undertake new home improvement projects and also new reasons to do so, such as creating healthier, wellness-centric homes, or additional work spaces.

Price stability largely returned to lumber and related building material categories in 2023, hovering around $550 per thousand board feet. In 2023, lumber prices declined  about 3.5% over the entire year. For building materials as a whole, the average price increased 0.2% per month.

“As the series of unknowns and unprecedented events are behind us, this stability is quite welcome, by lumber sellers and buyers alike,” said Madison’s Lumber Reporter.

Is there still a lumber shortage in 2024?

Volatility had been the name of the game in past years, and as a result, sellers kept lean inventories. Builder’s Vincent Salandro said lumber customers have been less willing to “stock up on construction materials due to market uncertainty and the incredible fluctuations in pricing over the past three years.”

Demand for lumber has remained comparatively subdued in 2023, especially in perspective to the massive surge in demand experienced in 2021 and 2022. In 2023, lumber pricing and availability became less about a lumber supply shortage and more about waning demand.

This is in respect to not only single-family residential housing, but also multifamily and build-to-rent (BTR) housing. The multi-family sector, which boomed and accelerated in 2021 and 2022, slowed to more of a trot in 2023 and is not expected to accelerate in 2024 either.

According to Grant Farnsworth, President of The Farnsworth Group,

“There are, indeed, size-able financial implications of monetary tightening causing the 2023 slowdown in the housing market, but the housing market is also driven by consumer confidence, and to what degree consumers feel sure about what’s going to happen. Consumer sentiments drive their attitudes and behaviors towards buying and selling homes, as well as embarking on home improvement projects.”

As a result of the "lock-in effect" impacting the resale housing market throughout 2023, consumer demand remained high for conducting repair and remodel home improvement projects.

How do timber prices impact lumber prices?

Timber refers to unprocessed material, while lumber refers to material that has been processed into boards and sheets. In other words, timber is input to produce lumber.

The US Bureau of Labor Statistics publishes the Producer Price Indexes (PPI) measuring the average change in selling prices of given products. The softwood lumber PPI reported an average of 241 for November 2023. The baseline is 100, and was established in 1982. Since 1982, softwood lumber prices have increased over 140%.

Building Material Product Price Index by Commodity as of December 2023

The softwood lumber and plywood PPI experienced extreme volatility since 2020 especially compared to other building materials (e.g., ready-mix concrete). However, both regained stability in the second half of 2022, even trending down in 2023.

In past years, many issues have affected the lumber supply chain and, therefore, its pricing. A contributing writer for CAIA Association, Chung-Hong Fu explains the “historic gains” affecting the North American lumber markets.

“The price surge was due to a surge in home improvement spending by homeowners who were sheltering-in-place because of the coronavirus outbreak,” said Fu. “In addition, a rapid recovery in the rate of new home construction during the period added to the heavy demand for structural-grade lumber.”

This supply chain relies on timber and lumber, which share a positive correlation. In other words, timber and lumber tend to follow roughly the same market patterns; as lumber prices rise, timber prices rise. As lumber demand increases, timber demand increases and so on. The same is true as relates to supply and creates a ripple effect on framing lumber prices and plywood prices.

In the past years, demand for lumber, and therefore timber, has been high. However, timber and lumber supply lines experienced challenges due to labor shortages, transportation availability, weather events, and more factors that placed constraints on supply.

As a result of constrained supply with heightened demand, lumber prices reached record-highs and were largely unstable for roughly two years. High demand rippled through the supply chain causing limited supply, increased prices and production challenges.  

While the home improvement sector has been thriving in the U.S. for the past two years, the high demand for supplies, inflation, and increasing online competition put pressure on home centers to pursue innovative solutions to stay relevant and work to prevent retailer switching.

Are lumber prices expected to drop in 2024?

Are lumber prices going down? Yes and no.

Yes, lumber prices have gone down compared to 2021 and 2022 historic highs, but no, lumber prices are not expected to drop to pre-pandemic levels. Material costs grew 19% on average since the pandemic. Comparatively, lumber prices may decrease as supply increases, assuming demand remains steady and slightly lower than in years prior as is currently forecasted.

Lumber is still expensive, but despite being higher than pre-pandemic levels, current prices began dipping in 2023 as the supply chain recovered.

It is expected that construction demand will uphold timber and lumber prices through 2025, and many builders are already heavily booked for 2024. Retaining labor and managing supply chain issues may sustain pressures in the construction industry, reports Andrew Hill of Schar Construction.

“By 2024, prices could be 25% to 28% higher than they would’ve been compared to a pre-2020 trajectory, which will make building a budget-friendly home a real challenge for some,” said Hill.

The myriad of challenges builders face is limiting their ability and their incentive to produce more housing units. At the end of 2023, just 1,027,000 single-family housing units were started according to the U.S. Census Bureau and HUD.

Leading Indicators of Lumber Demand

Further, builder confidence, as measured by the NAHB/Wells Fargo Housing Market Index, has rapidly declined since 2022 and as of January 2024 remains pessimistic with a score of 44 out of 100 (50 is the threshold differentiating between negative and positive sentiment). But, based on the number of housing permits issued in 2024, sentiments may rebound into positive territory in short order.

Builder Confidence, NAHB/Wells Fargo HMI as of January 2024

According to Danushka Nanayakkara-Skillington, Assistant Vice President of Forecasting and Analysis at the National Association of Home Builders, entering 2024

"Single-family construction is moving off cycle lows, while multifamily development is slowing after an unexpectedly strong run. The positive impact of low resale inventory and strong housing demand have been driving single-family production in recent months. However, builder confidence is in negative territory due to rising mortgage rates, elevated construction costs, and limited lot availability. A gain for single-family home building on a calendar year basis will have to wait until 2024."

What is the lumber market and industry forecast for 2024?

Madison’s Lumber Reporter stated the annual lumber price cycle came back to historical norms during 2023. Prices fluctuated about $150 through 2023, while 2022 saw a difference of $1,000 throughout the year.  

This more normal fluctuation provides confidence for producers and customers to plan the coming months and year. Into 2024, trends in lumber production and processing won’t feel so ambiguous or volatile to for suppliers and buyers to anticipate.

Producers priced lumber consistently even as supply dwindled at year end, but moderate sales persisted. The fall in demand balanced well with the limited supply. Buyers continued to “short-cover” through 2023, and the keeping limited supply trend will likely fall off as the lumber market continues to normalize.

“Many players used the old saw “sneaky strong” to describe the market; as supply and demand were in a deceptively balanced state,” said Madison’s Lumber Reporter.

Further Resources for Tracking Lumber Prices and the State of the Building Products Industry

Lumber index

The Madison’s Lumber Prices Index reports lumber price per thousand board feet (MFBM) on a weekly basis. As of December 15, 2023, the index assigned the price at 446 USD/MFBM—a 5% increase since 2022 but a 55% decrease since 2021.

Lumber prices

Madison also tracks the prices of specific benchmark products for the U.S. and Canadian markets. They record their dimension products in USD/MFBM and panel products in CAD/thousand square feet (MSF). (The conversion is 1 USD: 1.32 CAD.)

Kelsey Henry, Research Project Assistant

Written By Kelsey Henry

As Research Project Assistant, Kelsey is in her element designing documents, proofing data or text, and, otherwise, helping Project Managers deliver insightful reports to clients. Concept testing and usability studies pique her curiosity most, but she often works on reports covering industry trends or professional perspectives.

Prior to joining The Farnsworth Group, Kelsey worked as a business and science reporter for Purdue Research Foundation honing her skills in secondary research and interviewing. She also worked as a barn manager and ‘MacGyver-ing’ equipment into extended life.

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