What The Rise And Fall Of Lumber Prices Tell Us About The Pandemic Economy

Lumber prices soared during the pandemic, sparking inflation fears. Just as quickly, prices then dropped, but that's not the end of the story.

Transcript

LEILA FADEL, HOST:

Two-by-fours and other wood products have become a framing device for how we think about inflation during the pandemic. Booming demand from homebuilders and do-it-yourselfers sent the price of lumber to record highs earlier this year. But now the price is falling fast. And the Federal Reserve says that's a hopeful sign that other pandemic price spikes are also likely to be temporary.

NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: It's been a roller coaster ride for lumber prices over the last year, a rickety wooden roller coaster. And in a market that's usually pretty stable, that's drawn a lot of attention - from the aisles of Home Depot to the central bank.

Economist Dustin Jalbert tracks the lumber business for Fastmarkets.

DUSTIN JALBERT: It's kind of like the price of gasoline, right? You have a lot of weekend warriors that are doing projects around the home. And they see the price of a stud. And it's noticeable, right? Lumber has been this sort of poster child for these supply shocks that we've seen.

HORSLEY: The supply shock in this case has nothing to do with logs. There are plenty of trees in the U.S. And the price of raw timber has barely budged. The bottleneck that sent lumber prices soaring was sawmills.

ROSS STOCK: You could think of us as the grain mill in the ecosystem of the timber (laughter) industry.

HORSLEY: Ross Stock runs the Western Cascade sawmill in Toledo, Ore. He's spent decades sawing round timber into square boards.

STOCK: I'm a third-generation sawmiller. My grandfather started sawmilling in the post-war era.

HORSLEY: In the early months of the pandemic, a lot of mills shut down, both for health reasons and because they assumed demand for lumber would dry up. But then a funny thing happened.

(SOUNDBITE OF SAW WHIRRING)

HORSLEY: Stuck at home, Americans in large numbers started adding decks, repairing fences, even building treehouses. Professional homebuilders also got busy as rock bottom interest rates and a desire for more space pushed demand for housing into high gear. Sawmills struggled to keep up with the unexpected surge in orders. And over the next year, lumber prices quadrupled.

Now, though, Fastmarkets' Jalbert says, demand is cooling off. For one thing, do-it-yourselfers have found other ways to spend their weekends.

JALBERT: People are stuck at home less. They can go out and travel more. They can go out to restaurants and bars. In the home centers like Home Depot, Lowe's, the wood volumes going through there have slowed substantially, especially for items like decking, fencing.

HORSLEY: Professional homebuilders are also tapping the brakes, in part because it's taking longer to get appliances and doors and other building materials.

Florida homebuilder Chuck Fowke ordered windows for a house he was building last November. They finally arrived six months later.

CHUCK FOWKE: You have some builders that have building permits that are starting the houses. You have some that poured their slabs, and they haven't gone any further.

HORSLEY: So demand for lumber is easing. Supply is slowly picking up. And as a result, lumber prices are getting hammered. Prices have tumbled nearly 50% in the last two months.

Federal Reserve Chairman Jerome Powell sees that as a good sign.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: Prices like that that have moved up really quickly because of shortages and bottlenecks and the like, they should stop going up and at some point, in some cases should actually go down. And we did see that in the case of lumber.

HORSLEY: Even with the recent drop in prices, though, lumber still costs about 80% more now than it did before the pandemic, a premium that builders say is adding tens of thousands of dollars to the price of a new home. And the supply of lumber is still not growing very fast.

Ross Stock says building a new sawmill would cost tens of millions of dollars. He's trying to boost output at his current mill but says it's a struggle to find enough workers.

STOCK: It takes time to improve a mill. It takes time to develop people. I worked in sawmills since I was 8 years old. It's hard work.

HORSLEY: Forecasters say lumber prices may have more room to fall, which would be a relief for builders.

But Fowke, who chairs the National Association of Home Builders, says price volatility creates its own headaches.

FOWKE: The challenge right now for a builder is, if you're asked to give someone a price for a home, it's very difficult to give them a price right now because we're used to having price changes, you know, maybe six months or every 12 months. We're getting price changes now every two weeks.

HORSLEY: And even if two-by-fours are no longer propping up inflation, that doesn't mean prices will return to their pre-pandemic wood floor.

Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.