Will Lumber Prices Go Up Again in 2022?

Just when you thought that we were out of the woods, the price of lumber seems to be creeping upwards again. However, you may not have even noticed it yet.

It has been a rollercoaster ride of a year for the lumber industry. After reaching an all-time high on the 2nd week of May of this year (2021) at $1,670.50 per thousand board feet the price has its bottom drop out from underneath itself much quicker than any forecast predicted.

At The Time, Everyone Was Anxious To Know, “When Will Lumber Prices Go Down in Canada?”

Six months ago, nearly every expert, every columnist, every Weisenheimer from here to Yellowknife swore the prices wouldn’t ever spring back to pre-pandemic levels. Some said that it probably would, but it could take some time. Of those who were optimistic, a few anticipated that by mid-2022, it could start to dip down while others were warning that it might take years.

By late August, those who gave their speculated and seemingly educated predictions – that’s pretty much all of them – were marked as nothing short of a 1940’s science-fiction novelist; the ones who hand in their weekly short stories for the local digest publication. By science fiction, I am suggesting it couldn’t have been any farther from the truth.

Well, that might be a bit over the top but then again so was the demand that followed. Those patient enough to fare the stormy weather ended up saving thousands while others saved some tens of thousands while awaiting the commencement of their home renovations and new builds.

Others, however, most notably those with cash to burn did not exercise control and were exceedingly impetuous. As fate would have it those impulsive individuals would carry the lumber spike with them, ultimately lining the pockets of corporations with cash flow and making it difficult for a large percentage of Canadians to justify the cost of their pet project.

But goodness me, I’m getting ahead of myself.

Lumber Prices Plummet All the Way Back to 2018 Levels

Upfront, the ultimate mystery meat of woods; notably the SPF 2×4’s framing lumber (Spruce, Pine Fir – for those wondering the acronym’s mythical origins), saw the biggest change when it hit its lowest of lows in mid-August settling in at a vomit-inducing $389.00 per thousand board feet.

That is if you are an investor or hold equity in lumber futures.

Then yes, very unsettling. Those also quite sickened from the snakes and ladders effect were the independent lumberyards.

Lumber Yards Suffer As the Price Continued To Drop

Places like Century Mill Lumber in Stouffville Ontario and Peacock Lumber in Oshawa On. Two wonderfully run businesses with beautifully well-aged and diversified species of woods.

These middlemen of the trade had purchased thousands upon thousands of dollars worth of boards at the outrageously set prices just a few weeks earlier.

A difficult choice was upon them. They had to either unload this inventory at a comparatively higher price point to cover their costs and potentially lose customers or eat the difference to compete with the big-box retailers and lose revenues well into six digits and counting.

However for the end-users, DIY’ers and even builders who priced contracts based on the inflated commodity, the recent plummet had created a newfound influx of customers who were either previously fed up with the 300% bloat or builders trying to profit on contract materials already paid for (but not purchased yet) when the price was, shall we say, substantially paunchier.

Big Lumber Correction Meant Great News for Do-It-Yourselfers

For the handyman around the house, there was light at the end of the tunnel. A brightness over the horizon. Good things to come.

That was in mid to late August.

Even now early in November, the price of lumber is looking mighty fine. Well, perhaps comparatively affordable shall we say (in contrast to peak costs in May 2021). Not exactly cost-effective if you were to compare it to pre-covid prices. In fact, right on par with some of the highest prices that lumber had ever reached prior to the worldwide pandemic.

Which leads me briefly to a side topic, which has many people angered…

Don’t Be Fooled by Commodity Conditioning

So let’s face the facts here, this isn’t any kind of a great deal. We aren’t reaping the rewards of some miraculous nature. It’s more a case of buyer-perceived value. A form of retail and commodity “trickery” or as the saying goes, “having the wool pulled over our eyes”.

Gas companies do it all the time.

At any given time, the price of gas is ridiculous. People throwing their hands in the air, complaining on your left and protesting on your right. Then what do the gas companies do? They gouge us for even more! “Let’s jack up the price and leave it there for weeks or months”, they say.

Eventually, and with subtle composure, they strategically lower it back down to what it was before and usually slightly (and by slightly, I mean pennies) less than before the price hike. Guess what happens then? The community forgets the pain of their hungry pockets and the holes burnt in them from just months earlier. The gas companies rake in their profit as drivers swarm to the gas bars like a moth to the flame.

This isn’t much different. I have read several articles of reputable Canadian news publications describing how “Lumber is cheap again” but this is an illusion. We are being fed smoke in mirrors and all the while taking the bait.

DIYer’s Create Majority of High-Profit Margin Gains for Big Box Lumber Retailers

Surprisingly, one of the biggest factors for the recent fallout has not been from homebuilders and community contractors but instead from the little guy. The weekend warrior renovating his 25 yr old kitchen or the riffin’ bandmates soundproofing their garage straight into a guaranteed record deal.

Once the pandemic hit lumber suppliers cut back on production anticipating a tapering demand for building supplies. Housing contracts were temporarily suspended in order to slow the spread of the virus and mandatory shutdowns were ordered by the nation’s capital. You know the story…

Now, these same jobless workers along with every other Tom Dick and Harry were on so-called “house arrest”. It wasn’t just the tradesman, it was the whole darn country! Bored and eager to keep their minds busy and body moving, renovations and home improvements became the go-to activity for these young and restless individuals.

But this now trending activity was depleting the already meagre supply of timber. Any remaining home improvement businesses that were allowed to continue operations through delivery and curbside orders during the 4 waves of closure capitalized by jacking up the prices.

Month after month, prices continued to climb as demand continued to grow. Almost 12 months later, I think people just had enough. It’s almost as if in some secret Illuminati-style conference, all DIYer’s gathered in a hidden underground location to organize a mass lumber protest. It was all so sudden and the timing couldn’t have been more perfect.

Collectively, these individuals came together, like the cogs of a well-oiled machine, albeit coincidentally and unintentionally. Like the makings of a perfect storm.

The people spoke with a unified voice and bellowed, “This is enough already!”

Markets Finally Take a Tumble As Lumber Prices Crash Back to Earth

Consumers alike were fed up, although somehow it took a lot longer than anyone anticipated. It really surprised a lot of bay street analysts that the investors were able to ride that stallion for as many laps as they did.

But the timber manufacturers didn’t get the memo until it was too late. So what do you get when you cross a whole lot of production and an empty parking lot absent of consumers?

Yeah, you guessed it. Just like that first drop on Leviathan at Wonderland. Steep and quick.

Near summer’s end, Canfor Lumber Corp cut back production volume to 80% in response to altered consumer spending. The Vancouver-based mill saw a trend and shifted its course, hoping to balance the scales until the supply more accurately represented the dwindling demand.

So production across all provinces followed suit. The overabundance of raw lumber and low consumer drive led to the current state of affairs.

Lumber Commodities Are Slowly on the Rise Again in Nov 2021

Now that lumber is attractively priced to sell it’s picking up pace again. Combine that with the recent forest fires ablaze in B.C. over the summer causing several mills to temporarily pull the plug on productions and you’ve got a slow trickle back up the wick.

So What’s the Price of Lumber Today?

In recent weeks the price of lumber has made a slow and steady climb. According to Madison’s Lumber Reporter online, just last week Eastern Kiln-Dried SPF 2×4’s closed at $835CAD per thousand board feet and the week before that was clean at an even $800CAD. Western SPF priced in US funds has risen at fairly equivalent denominations.

OSB remained fairly static as did Canadian Ply for the past week, however when compared to a month ago they’ve both unquestionably made a steady move north and I’m not talking borders here.

When Will the Lumber Prices at Big Box Retailers Reflect the Actual Price of Lumber Sold to These DIY Suppliers?

Even though your local Home Depot has still most likely priced their SPF 2×4’s at $3.95 just as it was almost 2 months ago, be prepared for a shift.

Although it most likely won’t be a gut-wrenching gouge as it was during the May 2021 peak, don’t feel surprised if you need to shell out a crisp and clean Sir Wilfrid Laurier banknote for a single 8ft framing member by Feb/ March of 2022.

I’d speculate that it’s not impossible.

My advice, this time around would be to bring a paper bag and pack a couple of extra Advil for the road. This ride may get a tad bumpy.

About the Author

Clive Shapiro

 

 

Presently living in Northern Ontario, Clive enjoys the crisp open country air with his beautiful wife and two energetic daughters. Here in this picturesque backdrop lies the inspiration for his articles, covering a range of topics. These include his passion for financial freedom through property ownership, sound investments and forward-thinking money management.