What lower lumber prices mean for the housing market

It’s pretty hard to find anything in this economy that is as cheap as it was before the pandemic, but two-by-fours may now be in that category. That’s right — unexciting wood boards that, like all lumber, saw their prices skyrocket over the last couple of years, spawning jokes about engagement rings set with pine-stones and people hoarding their used Popsicle sticks.

Lumber prices were an early warning sign of inflation, so what does it mean for the housing industry that prices are now settling down?

Back in August 2020, James Hendricks took advantage of low mortgage rates to buy a house on a nice, big piece of land in the Houston suburbs. It was a bit of a fixer-upper. Well … more than a bit.

“It was listed as a ‘handyman special,’” Hendricks said. “And that was inaccurate.”

It needed more than a handyman to repair extensive termite damage that left floors and door frames caving in. And it needed a lot of wood.

“We noticed that prices started increasing and going up and up,” Hendricks said.

So, he put the renovation project on hold and didn’t get back to it in earnest until prices finally started easing. Now, his contractor is back to work, reinforcing the roof framing with freshly affordable two-by-eights.

Lumber prices can have a big effect on home construction, said Ken Simonson with the Associated General Contractors of America.

“Lumber prices are certainly significant for single-family homebuilding. It’s one of the most important ingredients in terms of materials used.”

But falling lumber prices are more a symptom of a slowing housing market than an opportunity for builders, according to Anirban Basu with Associated Builders and Contractors. As supply chain setbacks have eased and materials have become more affordable, he said, financing for builders and buyers has become more expensive.

“It’s very inconvenient,” Basu said. “It is almost as if somebody has been trying to sabotage the U.S. housing market or homebuilding market.” 

He added that new home construction has lagged demand since the housing crisis more than a decade ago — and it will take more than cheap two-by-fours to fix that imbalance.

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What cheaper lumber means for the housing market