On Your Survival Guy’s drive to New Hampshire, along I-93, you’ll see signs for Canobie Lake Park, home of the “Yankee Cannonball,” a 65-foot high wooden roller coaster built in 1930 and still operating today. Anyone trying to buy lumber for the last year can understand the surging ups and downs of the Yankee Cannonball.
You have been watching the lumber price volatility here as prices soared, shortages ensued, and the prices came back down again. Now, the Wall Street Journal’s Ryan Dezember explains that even though prices for lumber have come down, you shouldn’t expect new houses to cost any less just yet. He writes:
After rising to shockingly expensive levels this spring, lumber prices have fallen so far that they are starting to look cheap to some buyers.
Prices for two-by-fours surged in May to more than twice their previous record, set three years ago when there were about 15% fewer homes being built. But wood prices have since plunged back to levels resembling those before lockdowns cut supplies short and boosted demand.
July futures ended Tuesday at $599 per thousand board feet, down nearly two-thirds from the high of $1,711.20 hit in May, when wood-product supply lines were still being unknotted after the lockdown and before Americans began to shift spending from home improvement projects to vacations and dining out. More actively traded futures for September delivery settled at $649.90, just $10.90 above the pre-pandemic high.
The decline is benefiting builders and do-it-yourselfers and helping to allay fears of runaway inflation hamstringing the economic recovery. Still, buyers of new homes should not expect discounts.
Home builders say they expect to collect higher profit margins rather than drop asking prices. That is typical following periods of rising commodities costs, when the broad economic growth that normally accompanies higher raw-materials prices enables companies to pass along more expenses.
An analyst recently asked KB Home Chief Executive Jeffrey Mezger on a conference call if the big home builder would share lumber savings with house hunters—lowering an average asking price that rose 13% to $409,800 during its fiscal second quarter ended May 31—or boost margins, which have climbed to their highest levels since 2006.
“It will depend on the competitive landscape in each city,” Mr. Mezger said. “But our hope and expectation is we’ll take it to margin.”
Rival Lennar Corp. said that it too expects higher margins during the current quarter on an average sales price of between $420,000 and $425,000, up from $414,000 in the fiscal quarter that ended on May 31 and from $367,700 a year earlier. The home builder is saving about $1,700 on its average-size house for every 10% that lumber prices decline, co-CEO Jon Jaffe told investors earlier this month.
It is a different story at Home Depot, which cooped-up Americans flocked to during the pandemic. The retailer has lowered its lumber prices in recent weeks. Eight-foot studs that were offered in Ohio stores for $7.48 on June 21 were priced at $6.25 on Tuesday. In Utah, pressure-treated two-by-six boards for outdoor use fell to $9.37 for an 8-foot length, down from $13.37 three weeks ago.
Retail prices remain high relative to historical levels, but the cuts show the decline in futures and mill prices is trickling down to shoppers.
Action Line: Americans are riding the waves on inflation caused by massive fiscal and monetary stimulus efforts. The unpredictability of such price volatility is a gut punch to retirees attempting to live on a fixed income. If you need help making a retirement plan, I would love to talk with you.