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While the lumber outlook was bearish as recently as a few months ago, changes in the market that impacted supply—including mill curtailments and forest fires—and housing strength caused prices to increase.

A strong May new-housing construction report and continued low lumber inventory levels in the latter weeks of June contributed to strong demand for wood, and prices on many items rebounded, with specialty commodities such as studs experiencing the largest growth, according to Madison’s Lumber Reporter.

“Customers were caught flat-footed by diminishing supply as actual building activity got into high gear for the first time this year,” says Keta Kosman, publisher of Madison’s Lumber Reporter. “Severe wildfires in the north were ongoing, while weather conditions provided little hope of a respite any time soon. The unknowns of possible sawmill curtailments and lowered lumber production volumes served to motivate buyers to step in with booking purchases for wood needed into the coming weeks and months.”

As a result of recent shifts, the lumber market feels “good” as the perception is housing starts are past their trough while housing remains undersupplied, Jeff Wiesner, a lumber trader with Viking Forest Products, said in a conversation with Todd Tomalak, principal of building product advisory at Zonda.

In the lumber futures market, after starting June with a price of $483 per thousand board feet, prices jumped to a high of $589 per thousand board feet by July 11. Prices have stabilized in the latter weeks of July, with the lumber futures price retreating partially to $518 per thousand board feet as of July 27. According to Madison’s Lumber Reporter, for the week ending July 21, the price of Western Spruce-Pine-Fir was $458 per thousand board feet, up 17% on a month-over-month basis.

With expectations that the single-family housing market could grow in the 2024 calendar year, NAHB chief economist Rob Dietz says the lumber market is a key indicator for home builders to watch in the coming months.

“If our forecast is correct, and we’re going to see improving monthly data for the second half of 2023 and outright gains in 2024 for single-family starts, the underlying challenges in the softwood lumber market remain,” says Dietz. “We don’t produce enough lumber in the U.S., we import about a third of the lumber that we use. The vast majority, almost 90%, comes from Canada.”

Kosman says many customers, including builders, have not been willing to stock up on construction materials due to market uncertainty and the incredible fluctuations in pricing over the past three years. However, the significant increase in the cost of production for lumber manufacturers since 2020 likely means that lumber prices are unlikely to return to 2006 to 2017 “normal” pricing levels around $250 per thousand board feet.

“End users of lumber are running very lean on supply, whether in the hopes that prices might go down or simply in reluctance to stock up while market conditions remain confusing,” Kosman says.

She says demand for lumber will likely remain positive in the next 18 months, with housing starts projected to continue to improve. Additionally, with many homes aging out, the outlook for the remodeling market also suggests lumber demand will remain strong.

“True housing construction activity finally got going across the North American continent as the month of June closed. Many builders found themselves short of the lumber supply they would need for existing projects,” Kosman explains. “While no one was yet building inventory, the availability of wood remained quite tight due to ongoing sawmill curtailments and lessened production volumes. Demand increased to the point that lumber prices once again rose slightly.”

According to data from the Western Wood Products Association, sawmill capacity utilization rates in Canada—where the vast majority of imported lumber in the housing sector is sourced—were down to 69% through the first four months of 2023, suggesting there is a significant amount of lumber volume available to come online should an increase in demand trigger production activity.

Kosman says that as lumber sales continue to increase, more sawmills will ramp up production volumes to bring more lumber manufacturing online.

“As supply improves to meet demand, lumber prices should stabilize. Then it will start to become clear where the new price floor for lumber is; we will start to see what is the ‘new normal,’” Kosman says.

While the outlook remains more positive for the lumber market, Wiesner says the effects of wildfires is a wild card, as the fire season could be worse than already experienced. He adds that if the fire season continues to get more severe, it could add between 20% to 25% in additional lumber price increases due to potential supply limitations.