Why Housing Demand Continues to Move Lumber Prices
By Emily Balsamo and Alison Coughlin
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Canadian Lumber Exports

The slow responsiveness of lumber supply to demand is one factor behind the explosion in housing prices during the Covid-19 Pandemic. Between March 2020 and June 2022, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, a monthly composite of single-family home prices, marked an astounding 43% increase over 26 months. Rising interest rates have softened the price index slightly since.

As Americans were compelled to shelter in their homes throughout 2020, demand for single-family homes with greater square footage and outdoor space increased. Reflecting this tendency, new American homes are getting bigger: the average square footage of a new home exceeds 2,000 square feet in the 2020s, compared to under 1,400 in 1960 and just over 1,200 in 1940, according to housing market intelligence provider CoreLogic. The quintessential American “starter home” of modest square footage has all but disappeared from contemporary builds. At the same time, the U.S. Census reports that the average American household has shrunk from 3.3 people in 1960 to 2.6 at present. These trends converge to require increasing square footage to house each American.

Median Square footage

New multi-family buildings provide a potential bright spot for affordability in the U.S. housing landscape, albeit with architectural criticism. According to the U.S. Census, new privately-owned housing units in multiunit (5+) buildings suffered in particular from the housing bust following the subprime mortgage crisis. Only 53,000 units in 5+ unit buildings were started in October of 2009, comprising 10% of all housing starts that month; compared to 423,000 (19% of total) in January 2006. Recent peaks, however, pale in comparison to the 1,000,000 units built in March 1973, with units in 5+ unit buildings comprising 42% of starts that month. Units in 5+ unit buildings show growth of late, and averaged 533,000 per month in 2022, or an average of 34% of all new units in the year. 

Private Housing Starts

Although the current style of multi-unit architecture – five residential stories above one concrete story of retail space – emanates an industrial sense, the predominant build of “5-over-1s” feature wood framing.

In 2023, lumber supply and demand has somewhat returned prices to pre-Pandemic levels. There is sufficient supply sitting with wholesalers, and housing completions have exceeded expectations recently, meaning fewer projects are demanding lumber. It is unknown how long this dynamic will last, as sawmills have announced curtailments and building season will be underway. Experts say that housing values still have room to fall, meaning those in the market may turn to renovations prior to entering the market above value and facing significant interest rates. Though lumber volatility has receded from its 2020 highs, the past several years have demonstrated the ability for lumber prices to be volatile, and those in the lumber supply chain must manage exposure to wild swings in price.

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About the author

Emily Balsamo
Emily Balsamo

is a Manager of Commodity Research and Product Development. She is based in Chicago.

Alison Coughlin
Alison Coughlin

is Director of Commodity Research and Product Development at CME Group. She is based in Chicago.

 

 

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