Construction costs: US lumber prices finally fall

Lumber prices, an important element of property construction costs, dropped 40% in June – the biggest monthly fall on record in the US markets.

Lumber futures hit an all-time high in May at $1,670.50 per thousand board feet, fuelled by speculative trading, and supply bottlenecks and shortages as the US construction industry emerged from COVID-related lockdowns.

The record high price was six times larger than the low reached during the lockdown in April of last year.

US lumber futures hit an all-time high in May but dropped 40% in June. Source: Nasdaq

Goldman Sachs analysts suggested that construction demand has weakened somewhat in response to rising commodity prices in 2021.

Earlier this year, the National Association of Home Builders blamed shortages for rising lumber prices and increasing the construction costs of an average single-family home by US$36,000.

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The prices of wood products tend to be more volatile than other goods because construction activity is more responsive to changes in demand than sawmill capacity.

As cheap mortgage rates have pushed up demand, many of the sawmills that shuttered during last year’s lockdown took longer to come back online, mainly because of labour shortages.

In Cayman, rising prices caused by the US housing boom are compounded by more demand and a buoyant construction industry on island.

The global shortage of building supplies, such as copper, lumber, PVC and concrete, is driving up local construction costs and causing project delays.

In addition to the higher prices of raw materials and supplies, shipping costs have also increased.

It is likely to take many months before June’s price drop in US lumber futures filters down to the Cayman market.

In the meantime, commodity indices such as the Federal Reserve’s producer price index for construction materials remain at a record high after jumping almost 20% between November 2020 and May 2021.

 

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