Lumber futures are trading higher Wednesday for the first time in eight days as buyers emerge following a sharp seven-day selloff that dropped prices by as much as 29%.
Random length lumber futures for July delivery traded up 3.57% at $1,309.10 per thousand board feet after falling to $1,201 earlier in the session. The commodity closed at a record high of $1,686 on May 7.
"You're starting to see some indications that the supply-demand imbalance is correcting," said Shawn Church, chief editor at Fastmarkets Random Lengths, a Eugene, Oregon-based publication for the wood products industry.
He pointed to reports of improved rail service out of Canada, slowing sales at home-improvement stores, and the easing of labor shortages at lumber mills as evidence that market imbalances are improving.
Lumber futures have soared by as much as 316% from the start of 2020 as the COVID-19 pandemic caused supply chain bottlenecks and resulted in strong demand for building projects, including both home improvement and construction, as the ability to work from home led to the need for bigger houses.
The sharp rise in prices has added $36,000 to the cost of a new home, according to the National Association of Home Builders. The spike in prices was at least partially responsible for the sharper than expected 9.5% decline in housing starts in April.
"Prices are so high that customers don't want to pay that much," said Keta Kosman, publisher of Vancouver-based Madison’s Lumber Reporter. She noted that some builders have been putting off projects until prices fall, but that those who had already begun construction needed to pay up to get the job done.
Kasman thinks lumber could correct to around $1,000 by Labor Day, which is typically the low point for prices, before leveling off.
"There might be somewhat of a correction down season and then flattening unless we have fires, unless there's bad storms, that'll keep the price up," she said.