Lumber Prices, Demand Likely to Climb Long-Term

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The lumber market has been particularly volatile in the past three months, but demand and prices for the commodity are likely to see a long-term climb as a “new normal” emerges, analysts say.

The do-it-yourself and over-the-counter consumers of lumber and building materials led the dramatic price moves in 2020-21, noted Kyle Little, chief operating officer of Sherwood Lumber, a national building materials supply company. “As the white collar workforce moved to a work-at-home environment for much of the pandemic, there was literally nothing else to do than complete the majority, if not every, project that had been sitting idle prior.” That boosted demand — and prices — for lumber.

However, the do-it-yourself project boom was a “generational event that we will not see again for some time,” said Little. The marketplace is moving “back from the overextended extremes and is developing its new normal.” That new normal hasn’t been fully determined, but its range “looks to be better than pre-Covid” times, he said.

“There will certainly be an ebb and flow to the housing market over the next few years,” said Scott Reaves, director of forest operations at Domain Timber Advisors. “We expect to see sustained increases in lumber demand from housing during that time.”

For now, the real opportunity for investors is “further up the supply chain in forestland investment,” added Reaves. Increased demand for raw materials, including lumber, packaging, and mass timber, coupled with growing interest in reducing carbon emissions, suggest an “attractive entry point for forestland investment.” Early this year, for example, Weyerhaeuser Co. bought 69,200 acres of Alabama timberlands for $149 million.

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Home construction demand, meanwhile, is going to be very high for the next eight to 10 years, even without a pandemic, according to Little. The U.S. “underbuilt shelter needs” from 2008 to 2018 as a result of the 2007-09 recession, he said.

“Lower commodity prices are relieving some of the cost pressure on builders,” said James Knightley, chief international economist at ING. “We believe that housing activity is returning to its pre-Covid trend.”