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Timber prices have dropped significantly, but don’t expect the cost of a new home to go down

After rising to surprisingly expensive levels this spring, timber prices have fallen so far and are beginning to look cheap to some buyers.

Prices for 2×4 in May soared more than double the previous record, set three years ago, when homes under construction fell by about 15%. However, timber prices have since plummeted to levels before demand was boosted due to supply shortages due to the blockade.

July futures ended on Tuesday at $ 599 per 1,000 board feet, down nearly two-thirds from the May high of $ 1,711.20. Vacation and eating out. More actively trading futures on the September contract settled at $ 649.90, just $ 10.90 above the pre-pandemic high.

This decline has benefited builders and do-it-yourselfers and has helped mitigate the fear of runaway inflation hindering economic recovery. Still, new home buyers shouldn’t expect discounts.

Homebuilders say they expect to raise higher profit margins rather than lowering asking prices. This is the next typical time of rising commodity costs, where widespread economic growth, usually associated with rising raw material prices, allows companies to pass on more costs.

Analysts recently asked KB Home CEO Jeffrey Mezger in a conference call if a major homebuilder would share timber savings with house hunters. , Has risen to the highest level since 2006.

“It will depend on the competitive environment of each city,” Mezgar said. “But our hope and expectation is to push it to the limit.”

Demand for timber surged during the pandemic, hitting a record high. In this video, we’ll talk about the profitable timber boom and why the people who grow trees aren’t enjoying it. Illustration: Liz Ornitz / WSJ

Rival Renner Co., Ltd.

He also said he expects profit margins to rise this quarter, with average selling prices between $ 420,000 and $ 425,000, from $ 414,000 in the accounting quarter ending May 31 to $ 367,700 in the year-ago quarter. I did. Homebuilders are saving about $ 1,700 on average-sized homes for every 10% of falling timber prices, co-CEO Jon Jaffe told investors earlier this month.

It ’s a different story at the Home Depot.,

During the pandemic, cooperating Americans flocked. Retailers have lowered timber prices in recent weeks. The 8-foot stud, which offered for $ 7.48 at a store in Ohio on June 21, sold for $ 6.25 on Tuesday. In Utah, pressure-treated 2×4 boards for outdoor use dropped from $ 13.37 three weeks ago to $ 9.37 eight feet long.

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Retail prices remain high compared to historical levels, but price cuts indicate a decline in futures and factory prices are slowly declining for shoppers.

Dealers, traders and price forecasters say the sticker shock and the reopening economy have hit retail timber sales this summer. There is also a surge in demand from restaurants and bars that build patios for outdoor seating in the rear-view mirrors. However, low prices are beginning to beckon buyers, especially developers of large projects such as apartments that shelved construction plans when prices reached unprecedented levels.

Matt Rayman, a market analyst and consultant who publishes the Rayman’s Lumber Guide, said: “Now they are back on budget.”

Homebuilders can adjust the pace of subdivided construction with cost and material availability in mind, but apartment developers don’t have that luxury. They order wood in a boxcar all at once.

Soaring prices have pushed the cost of timber for apartments, which may have been $ 3 million before the pandemic, to $ 10 million, Rayman said. This wasn’t a beginner for many multi-family developers who started construction later than homebuilders.

Rayman expects prices to rise in August between the time of purchase and the end of the holiday season. However, prices could then return to normal levels due to the seasonal slowdown in construction in the fall. “There is no reason in the world to return to $ 300,” he said.

Sherwood Lumber Corp, a supplier in Melville, NY. Josh Goodman, vice president of purchases at the company, said he told customers this spring to refrain from buying wood if possible. I didn’t do much. But the people who have been waiting, especially the multi-family builders, have recently returned to the market.

“Some people are putting on hold work that is turning the switch back on,” he said.

Correction and amplification
The price dealt at the Home Depot in Utah at 2×4 was $ 9.37 on Tuesday, eight feet long, down from $ 13.37 three weeks ago. Earlier versions of this story incorrectly indicated the board dimensions as 2 x 6. (Corrected on July 14)

Write to Ryan Dezember (ryan.dezember@wsj.com)

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Timber prices have dropped significantly, but don’t expect the cost of a new home to go down

Source link Timber prices have dropped significantly, but don’t expect the cost of a new home to go down

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