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The price of US lumber (CME random lengths) has skyrocketed from $875 per 1,000 broad feet at the beginning of the year to just over $1,325, which is more than four times its 2010-20 average of $325. Even though economists at Capital Economics expect lumber demand to hold up well for some time, they still think that a rebound in supply will lead to a sharp fall in the price of US lumber over the next eighteen months.

Lumber prices to be cut down to size

“We think that demand for lumber will remain elevated over the next eighteen months. The inventory of existing homes for sale is at a record low and will remain so for some time, which should continue to bolster house prices, homebuilder confidence and, in turn, the construction of lumber-intensive single-family units. Moreover, we suspect that even more households will renovate and expand their properties to help facilitate homeworking, although the high price of lumber might delay some refurbishment plans.”

“Despite our positive outlook for demand, we still expect the price of lumber to decline sharply by end-2022 for two key reasons. First, we expect domestic production to soar. Second, US lumber imports have increased in recent months, and they could rise further, spurred on by the high domestic price but also because of an appreciation in the value of the US dollar. What’s more, the Biden administration could (temporarily) cut tariffs on imports from Canada (the top lumber exporter to the US), which would provide a further boost to imports.”

“We forecast that the price of US lumber will plummet to $600 and $550 per 1,000 broad feet by end-2021 and end-2022, respectively, as domestic supply surges and imports remain strong.”