A customer wearing a protective mask loads wood at a Home Depot store in Pleasanton, California, Feb. 22, 2021.
David Paul Morris | Bloomberg | Getty Images
The great wood bubble of 2021 has popped.
After an overwhelming rally this spring, timber prices have fallen again as supply has increased, speculative trading activity has cooled and demand for homebuilding has declined. Timber futures fell 42% in June alone, on pace for the worst month on record since 1978. Construction commodity is down more than 13% in 2021, heading into its first negative first half since 2015.
At the peak on May 7, timber prices hit an all-time high of $1,670.50 per thousand plank feet, which was more than six times higher than the pandemic low in April 2020.
The rapid reversal of the months-long rally of timber came as Americans went back on vacation during the economic reopening rather than taking on renovation and construction projects. Many who fear continued inflation are also taking solace in the drastic fall in prices in the face of dwindling demand.
“This drop suggests that the cause of that inflation — the supply-demand mismatch — won’t last forever,” said Brad McMillan, CIO at Commonwealth Financial Network. “As suppliers in different sectors join forces, those shortages will fade along with inflation. That seems to be happening now for wood and will happen later for other inputs.”
Goldman Sachs analysts said Tuesday that their channel checks suggested consumer hesitation around some home improvement projects was growing, given the sticker shock from the rapid rise in certain commodity prices this year, particularly wood.
Earlier this year, timber prices exploded due to a combination of reduced supply from factory closures and rising demand for new and improved homes. At one point, the timber shortage caused the average price of a new single-family home to rise nearly $36,000, according to the National Association of Home Builders.
In the red-hot housing market, there was also a record shortage of available existing homes. In April, about 1 in 4 homes for sale was new construction, the highest share ever. Historically, new homes make up about 1 in 10.
Lately, there have been signs that the housing boom is bubbling. Weekly mortgage demand fell 6.9% last week to its lowest level in nearly a year and a half.
Now wood futures prices are on track for their sixth consecutive weekly loss, wiping out the entire 2021 rally.
“It was a bubble, but it’s still double what it was before Covid,” said Peter Boockvar, CIO at Bleakley Advisory Group. Still, Boockvar believes that the fact that the wood bubble may have burst does not mean that the threat of inflation is not real.
The investor pointed to the CRB Raw Industrials index, which is currently at a 10-year high. The index tracks materials not traded on a futures exchange and thus better reflects actual supply and demand and not the behavior of speculators.
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