This spring, the budgets of home builders and DIY enthusiasts were completely crushed because timber prices soared 300% compared with those before the epidemic. In this turmoil, some people in the timber and construction industries even questioned whether timber prices would remain high.

However, wood foam has not only ruptured, but has lost all growth. Since its peak of $1515 per thousand board feet in May, the price of frame timber has fallen 72% to $418. This has brought timber prices steadily back to the recent historical trading range of $350 to $500.

Simply put: high timber prices are not the new normal.

How did we get here? Well, you can't attribute the historical operation of wood and its subsequent collapse to one or two simple factors. On the contrary, it was a perfect storm and began early in the new crown crisis.

Faced with downtime and economic recession, North American sawmills shut down sharply in the spring of 2020. By April 2020, U.S. timber production will be 15% lower than that in 2019. Sawmills and loggers don't want to be in inventory trouble as they were when the real estate crash in 2008. Therefore, they also disposed of the inventory at a discounted price.

However, they were caught off guard when demand suddenly rebounded only a few weeks after the crisis broke out in the spring of 2020. Catching up is not easy: as the pandemic continues, it is difficult for sawmills to find workers. The shortage of workers has hampered the ability of sawmills to increase production to meet soaring demand.

What is the reason for the surge in demand? When the pandemic broke out in the spring of 2020, face-to-face real estate display almost dried up. The industry is worried that the housing bubble will soon follow. But the opposite has happened: the real estate market has experienced a historic rise - the median price has risen by 23% since February 2020.

Similar to the timber boom, housing has its own perfect storm, triggering a frenzy. Low mortgage rates caused by the recession make it easier for buyers to further expand their budgets. Realizing that they no longer need to stay in the office five days a week, renters began to buy houses in more affordable suburbs and suburbs. The fact that we are in the five-year window of the year of birth of the largest millennials will only exacerbate this enthusiasm: people born between 1989 and 1993 are almost 30 years old - a very important age sign when the first house purchase really takes off.

Many houses available for sale were snapped up because of the housing boom. By April 2021, the number of houses for sale in the United States had decreased by 53% over the previous year. This brought inventories to their lowest level in more than 40 years. This also means that the real estate market in 2021 is one of the most tense and competitive markets on record.

Ultra low existing housing stocks have had a significant impact on timber.

With the existing housing inventory exhausted, buyers have no choice but to turn to home builders. This led to a rapid rebound in housing construction. By March 2021, the number of new housing starts per month will be 1.7 million, the highest level since 2006. Of course, all these buildings have led to a surge in demand for framing, oriented particleboard (oriented particleboard) and plywood.

"After a short pause, the real estate market soared in 2020. Consumers are enthusiastic about low interest rates and promote home purchase after spending more time at home. They are looking for available properties. Builders respond to growing demand by rushing to build as many houses as possible," said Ali Wolff, chief economist of Zonda, a real estate market research company. "The problem is that the factory suspended production during the slowdown in March and April and was unprepared for the rapid improvement of housing and the increase in demand."

This construction boom does not just happen in residential buildings: when the pandemic first struck, bored Americans rushed into logging yards and large stores to buy materials for do it yourself projects. By March 2021, home decoration sales will reach a record high, an increase of 34% over 2019.

As construction and renovation soared, so did timber prices. But by the end of the spring, those rising timber prices had crushed the budgets of builders and remodelers.



In May 12th, two weeks before the timber bubble reached its peak, fortune told us that timber supply could only grow so fast, so the demand needs to be reduced to correct prices. In the end, this is what happened: once the buyers are tired of astronomical prices, the wood foam will burst.

Since peaking in March 2021, new house construction and house decoration sales have decreased by 11% and 11.1% respectively. Due to record timber prices, some home builders, such as konter quality homes in Savannah, even stopped accepting new orders and construction this year.

"The culprit of the price correction is the demand side. In May, home builders repriced in the third quarter - startled by seeing $1700 wood futures for the first time - and completely braked," deacon lumber CEO Stinson Dean told fortune. "The supplier cannot supply 1.7 million new houses for construction... This is the real problem."

But the most obvious correction is not residential construction. Instead, it happened in the aisles of stores such as home depot and lowe's. Once the timber price rises by more than 300%, the DIY market will dry up.



The timber boom is good for the logging industry. Looking at their bottom line, we can see that "between the second quarter of 2020 ($160 million) and the same quarter of 2021 ($3.7 billion), the total net profit of the five publicly traded timber producers in North America soared by 2218%.

Eager to cash in the timber boom, sawmills are eager to increase production. Softwood production in the Pacific Northwest and British Columbia, the center of North American timber, is quite limited. On the contrary, loggers are scrambling to cut down more southern Yellow Pine, which is abundant in the southern United States. Timber giants headquartered in British Columbia, including C Anfor, West Fraser wood and interfor all announced expansion plans in the South earlier this year.

Between April 2020 and April 2021, U.S. industrial wood production rebounded by 18%. Although the range was small, only 1% higher than the level in 2019, it occurred at the same time that buyers finally began to flinch from record prices. Of course, more supply and less demand are the perfect secret to correct prices.



From May 28 to August 27, the wholesale price of wood has been falling for 13 consecutive weeks this year. However, industry insiders told that the current correction period may have ended because the wood seems to have found its suitable price. In the past two weeks, the price has increased by $29 to $418 per thousand board feet.

Where will prices go? The industry agrees that we will not see price increases in the spring of 2021. However, many people expect prices to rise again this autumn and winter.

Andy Goodman, chief executive of Sherwood wood, told us, "prices have stabilized and we are looking forward to a very busy autumn. Due to the recent production reduction in North America, logistics problems and supply restrictions related to the epidemic, we expect there will be great upward pressure as we move forward."

There are still many buyers on hold. This summer, many DIY enthusiasts began to wait for the best discount after seeing the repeated price cuts in hypermarkets. Now, the decline in wholesale prices in retail seems to be a foregone conclusion, and some home decorators may come back to buy. Recent polls show that this is what is about to happen.

"I think the timber spot market will rebound from its current level this autumn. Although it will not double, it is difficult to say how high it will rise," said jarbert of fastmarkets risi