An active logging site among burned trees from last year’s Rim fire near Groveland, California July 30, 2014.
Lumber prices hit another record high this week, trading above $1400 per thousand board feet as mills and timber companies struggle to meet demand.
In 2021, lumber prices are up roughly 57%, and over the past year, that number moves to more than 325%.
The meteoric rise in lumber prices has had effects all over markets, but new home sales have been particularly affected.
According to data from the National Association of Home Builders, lumber’s rise has pushed new single-family home prices up by some $24,000 in the last year alone.
In Bloomberg’s “Odd Lots” podcast with Joe Weisenthal and Tracy Alloway, Stinson Dean, a lumber trader at Deacon Trading, discussed the run-up in lumber prices and the complex history that has led the market to historic supply constraints.
Dean said that during the pandemic, the lumber industry predicted prices would fall, but instead they rose over 120% on the year.
Typically, rising prices and demand will force suppliers to add to their inventories, but as Dean elaborates, the lumber industry’s conservative nature prevented many from making that move.
“High prices cure high prices, but in our industry, high prices raise concern and people get really scared that it’s just going to crash. So, everyone was slow to believe in the recovery, so no one invested in inventories effectively. That hesitation to lean in and put risk on perpetuated this situation that were in that has been such an acute run up,” Dean said.
Dean noted that the tumultuous history of the lumber industry, particularly during the great recession of 2008, has created a conservative group of timber operators.
“What happened and is happening right now, I think, is ultimately a result of the scars of the great recession and the conservative nature of our industry not wanting to put risk on via lumber inventories,” Dead said.