Technology stocks seemed to be soaring over the past few months, but most people didn’t realize that the real bubble was in lumber.
If you frequently buy lumber, it would be hard for you to miss the increase in its prices.
The price of lumber hit an all-time high of over $900 by the 1st of September, which is three of its cost back in April.
When the coronavirus pandemic hit, lumber mills all over the country had to close down and Americans were forced to stay home.
While at home, Americans began to realize they wanted to improve their houses or a new one altogether.
Due to this, the cost of several building communities began to climb leading to the price of lumber increasing.
Some people felt that the prices were being increased by lumber companies by generating a shorting supply which will in turn form a bubble they would inadvertently benefit from.
However, the pandemic is to blame as demand and supply are not in sync. More lumbers are being pressed for while lumber mills are not creating enough supply to meet this request.
Lumber prices increased by over 130% in September, and while other building commodities seem to be climbing down from their steep prices, lumber appears to be staying in place.
The future price of lumber as well as the cash price experienced a spike because of the massive recovery of housing; this stripped lumber stock that was shut down during the lockdown.
As Americans ran from the hot-spot locations and choose to seek refuge in cities that are more spread out, owning a home became a top priority once more and the prices of home as well as building homes experienced a surge all over the country.
Who’s to Blame?
DIYers (Do It Yourself teachers)
Staying at home led to many people having to learn some activities to keep busy during the pandemic.
These activities required lumber most of the time, and because none of it was expected, it did a number on the lumber stock.
It was anticipated that lumber prices would reduce during the lockdown because homes’ construction was put to a standstill because of the lockdown and to eradicate concerns about infection.
However, the many DIY activities like building decks, taking care of repairs personally, and essential businesses like the supermarket retailers were not accounted for and played a role in the increase of lumber prices.
As the country began to ease the lockdown and people had to pick up where they left off at work, construction companies resumed duties once again.
Building of homes came back in full force and the stats of housing began to surge higher every month. It’s the price of this surge that we are all beginning to pay for.
Contrary to people’s expectation that the housing market would crash because of the pandemic, it surged instead because of the low interest rates that were a result of the recession.
More people could collect loans and rebuild homes because they were planning to stay indoors much more than before; this boom led to a busy year for the construction industry.
This led to stress on lumber companies who couldn’t meet the surge in demand immediately; building materials became even scarcer and the order for lumber sometimes took weeks.
To stay ahead of the increased requests, the price of lumbers had to be pushed up. An increase in housing construction is the main reason why there is an increase in lumber prices in the US.
When combined with the high surge at supermarket stores, it’s easy to see why lumber mills have not successfully caught up with requests.
What are Investors Doing?
Lumber is a product and it is a good that seems to be doing well now. Therefore, we can safely say that investors have begun to dabble into the lumber market.
Companies who usually take time to refill their lumber stock and start to buy in bulk to meet up with the current situation and stay ahead of the new demands while profiting from the lumber scarcity.
Building companies are also taking the same action in order to be able to keep up with building schedules.
Investors are taking mote of this and have gotten tangled up in the lumber market. This will invariably have an effect on the prices and will keep the volatility of the market going till the supply of lumber can finally match up with the boom.
When Does It All Slow Down?
We can all agree that 2020 has remained an unpredictable year dishing out several unexpected events. The different events that led to the bubble in lumber prices are also random events we can add to the list of things we have experienced all year. However, the question everyone wants an answer to is then the price will either stabilize or begin to step down.
It’s fair to say that no one foresaw that lumber prices will increase to the heights it is right now and no one can successfully predict how high lumber prices will go or when it will begin to stabilize.
This depends on the balance of supply and demand. Until we can achieve equality between supply and demand or supply begins to exceed the amount of boom for lumbers, the prices are bound to stay on the high side.
Experts have concluded that lumber prices will not only remain on the high side all through 2020, but the increased price might also actually carry on into the first quarter of the next thing.
One thing we can all agree on, however, is that the increase in lumber prices will once day come to a standstill.
Once the demand and supply level is on the equal side, the building begins to slow down, and lumber mills begin to supply enough, the prices will return to normal.
For now, you can check out hardwoods as a substitute to your lumber needs as hardwood prices are not surging as much as lumber is at the moment.