Lumber hits 2022 low as reality sets in in this ‘back to normal’ housing market

• Lumber prices continued their downward trend on Wednesday, falling 5% to a new 2022 low of $495 per thousand board feet.
• The sale came as homebuilders adjust to the new reality of a housing market “returning to normal”.
• “The last two years are going to be an outlier when it comes to [home] prices go,” said LGI Homes CEO Eric Lipar.

Lumber prices continued their descent on Wednesday, falling as much as 5% to a new 2022 low of $495 per thousand board feet.

The essential building product has been on a frantic run since the start of the COVID-19 pandemic, with prices peaking at an all-time high of $1,733 per thousand board feet as demand for homes surged and prices Supply chain issues have plagued sawmills across Canada.

But since lumber peaked in May 2021, it’s only been a descent for the commodity, with a 71% drop from peak to trough. Weakness accelerated in 2022 as rising mortgage rates helped cool the booming housing market, fueling demand for lumber as homebuilders sought to take advantage of rising housing prices. Requirement.

“The last two years, it’s just been an incredible market where all the builders are taking orders, everyone is having phenomenal success, everyone is having phenomenal margins,” LGI Homes CEO Eric Lipar said during the interview. from the company’s earnings conference call on Tuesday.

LGI Homes is a builder of single-family homes in the Western and Southeast states and has benefited from higher margins amid the COVID-19-induced housing demand boom. But those margins are not sustainable as demand for homes cools and prices show signs of falling in some markets.

“We will standardize our prices. Yes, we will probably sell the same floor plans in the future for less money than in the last 24 months. But it will be similar to what it was two years ago and three years, because the last two years are just going to be an outlier when it comes to [home] price will,” Lipar said.

This is good news for future home buyers who have been shut out of the market due to rising home prices and a limited supply of homes for sale. The recent spike in mortgage rates has not helped affordability, but the average 30-year fixed mortgage rate has fallen more than 50 basis points from its June peak, offering some relief.

The drop in lumber prices also confirms the view that, based on this and other commodity prices that have fallen in recent months, inflation may finally come down, which the Fed and consumers are eagerly anticipating.

Ultimately, the housing market is on its way back to normal, which means lumber prices are expected to remain in the normal range heading into 2020 of $200 to $600 per thousand board feet.

“An adjusted gross margin of 33%, it’s very unlikely that we’ll ever see that, again, in our history. It’s such an outlier in gross margin. And we’re just getting back to normal” , said Lipar.