Lumber prices are going down, but don’t expect new homes to cost less

July futures contracts ended Tuesday at $ 599 per thousand board feet, down nearly two-thirds from the high of $ 1,711.20 reached in May, when wood products supply lines were still unraveled after the lockdown and before Americans started shifting spending from home improvement projects to vacations and dining out. More actively traded futures for September delivery stood at $ 649.90, just $ 10.90 above the pre-pandemic high.

The decline benefits builders and DIY enthusiasts and helps allay fears of runaway inflation that is hampering economic recovery. Still, new home buyers shouldn’t expect discounts.

Home builders say they expect to collect higher profit margins rather than lower asking prices. This is typical after periods of rising raw material costs, when the broad economic growth that normally accompanies rising raw material prices allows companies to pass on more expenses.

An analyst recently asked KB Home Managing Director Jeffrey Mezger on a conference call whether the large homebuilder would share lumber savings with home hunters – lowering an average asking price that rose. by 13% to $ 409,800 in its fiscal second quarter ended May 31 – or increase margins, which have reached their highest levels since 2006.

“It will depend on the competitive landscape of each city,” Mezger said. “But our hope and our expectation is that we’re going to take it on the sidelines.”

Rival Lennar Corp.

said he also expects higher margins in the current quarter on an average selling price of between $ 420,000 and $ 425,000, up from $ 414,000 in the fiscal quarter that ended on the 31st. May and $ 367,700 a year earlier. The homebuilder is saving about $ 1,700 on his midsize home for every 10% drop in lumber prices, co-CEO Jon Jaffe told investors earlier this month.

It’s a different story at Home Depot,

where locked-in Americans have flocked during the pandemic. The retailer has lowered its lumber prices in recent weeks. The eight-foot cleats that were available in stores in Ohio for $ 7.48 on June 21 were priced at $ 6.25 on Tuesday. In Utah, pressure-treated two-by-four boards for outdoor use fell to $ 9.37 for an 8-foot length, from $ 13.37 three weeks ago.

Retail prices remain high from historical levels, but the cuts show lower futures and factory prices are being passed on to buyers.

Dealers, traders and price forecasters say sticker shock and the reopening economy have hurt retail lumber sales this summer. Explosions in demand from restaurants and bars building terraces for terraces are also in the rearview mirror. But falling prices are starting to attract buyers, especially developers of large projects, like apartment buildings, who put construction plans on hold when prices hit all-time highs.

“There were so many multi-family projects on the table that were ready to build at $ 700 and were dropped off,” said Matt Layman, market analyst and consultant who publishes Layman’s Lumber Guide. “Now they’re back within budget. “

Home builders can pace construction in subdivisions taking into account cost and material availability, but apartment developers do not have this luxury. They order wood in boxcars all at once.

The surge in prices pushed lumber costs for apartments that could have been $ 3 million before the pandemic to $ 10 million, Layman said. It was a non-starter for many multi-family developers, who were slower to innovate than home builders.

Between their shopping and the end of the holiday season, Layman expects prices to rise in August. But then prices are expected to fall back to normal levels with the seasonal downturn in construction in the fall. “There’s no reason in the world that it can’t come back to $ 300,” he said.

Josh Goodman, vice president of purchasing at Melville, NY, supplier Sherwood Lumber Corp., said he told customers this spring not to buy lumber if they can. Many did not. But those who waited have returned to the market in recent times, especially multi-family builders.

“There are people who have jobs on hold who turn the switch back on,” he said.

Corrections and amplifications
The two-by-fours handled at a Home Depot in Utah were priced at $ 9.37 for an 8-foot length on Tuesday, down from $ 13.37 three weeks ago. An earlier version of this story incorrectly gave the board dimensions two by six. (Corrected July 14)

Write to Ryan Dezember at [email protected]