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The Wild Ride of Lumber: A Market to Watch

Posted: Jonathan Chapman

If Noah had to build his ark today, he’d be in for a shock. Over the course of the past several months, lumber prices have been on a wild ride. Since the beginning of April, lumber prices more than tripled and then fell abruptly at the end of last week. The rise in price was likely driven by a spike in demand from the renovation and new home markets as well as the forest fires in the West and Northwest. It makes sense that renovations have increased since people have not been able to spend as much on luxuries such as vacation and travel this year due to COVID. New home sales have likely increased because of low interest rates as well as a lack of supply in the existing home market since sellers have been reluctant to list their homes during a pandemic. The sudden drop in the price of lumber at the end of last week is indicative of a seasonal correction and a rollover of future contracts. However, prices are still almost twice as high as they were in April. This is one market to watch because if prices stayed high or increased further from current levels, it could not only impact the cost of wood products at the lumber yards and the do-it-yourself big box stores, it could cause a ripple effect to homeowners insurance as well. Therefore, when your insurance renews, be sure to keep an eye on it because if lumber prices stay high, the potential or assumed cost of a rebuild calculated by the insurance companies could increase and would thus cause insurance premiums to rise.

 

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