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Lumber costs start to dip after reaching sky-high levels

Lumber costs start to dip after reaching sky-high levels

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Lumber prices are finally going down. Projections for July lumber delivery show prices are expected to drop 42 percent from a record high in May.

Lumber prices have started to come down from historically high levels, but some experts don't expect them to return to normal anytime soon.

Supply shortages coupled with increased demand during the COVID-19 pandemic drove prices sky-high, soaring to about $1,500 per 1,000 board feet in May and increasing by nearly 250% between April 2020 and April 2021, according to a National Association of Home Builders analysis.

Now, those prices have started to dip. By June 11, the price per thousand board feet had fallen below $1,400, according to the NAHB's analysis of Random Lengths Lumber Composite Price data.

But costs are still far from where they were before the pandemic.

Kyle Little, chief operating officer at Sherwood Lumber, told Fox Business that price points reached an "unsustainable" level and that the recent decline was "inevitable."

"We moved up to extreme hyper-highs here over the first half of 2021 after a record move in 2020," Little said. "This adjustment that we're going through right now is just that. We are seeing continued tremendous demand in the pipeline with continued supply chain problems throughout all parts of the lumber supply chain."

Will lumber prices keep going down?

Some industry experts expect lumber prices to remain elevated for the foreseeable future.

Little told Fox Business he doesn't expect a "tremendous amount of change in the environment that we have."

"We might have passed the peak so to speak. However, we will trade at a really, really high range for the remainder of this year (and) well into 2022," Little said.

In May, he told CNBC that he expected prices to remain elevated for the "foreseeable future." In June, he told that outlet that his forecast hasn't changed.

"We're in month number 12 of what we believe to be a 24-to-30-month ... cyclical bull wave," Little told CNBC. "We really believe the new three-year mean will be much, much higher — almost two times — than what we've seen the previous 20 years."

Bloomberg also reports that a return to pre-pandemic levels shouldn't be expected anytime soon.

"'Nosebleed' prices won't last, but strong demand, a limited supply response and a rising cost curve all point to above-trend prices for at least the next 12-24 months," BMO analyst Mark Wilde said, according to Bloomberg.

Scott Reaves, forest operations director for Domain Timber Advisors, told Bloomberg that "strong U.S. home building" is expected to last for several years, which will keep prices above $500 per 1,000 board feet for the next five to eight years.

"We're at a new normal," Reaves told Bloomberg. "We're going to see this sustained level of housing demand and a new normal for a pricing floor in lumber."

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