A sharp drop in wood prices makes residential construction optimistic for the second half of 2021.
Wood futures closed at $ 737.40 per thousand board feet in June after starting the month at $ 1,267.50 and climbing to an all-time high of $ 1,670.50 on May 7, according to Nasdaq data. Although it was still above the previous year's $ 431.60, it hit its lowest level since $ 700 on Jan. 20. The most recent decline represents a 55.9% decrease from the May peak and a 41.8% decrease during the month – the largest monthly decrease since records began in 1978, according to CNBC.
The supply of home for sale has seen modest increases over the past two months, largely due to the increasing number of offers from more sellers entering the market. The latest construction start dates in May showed monthly growth, although building applications fell to a seven-month low. Material restrictions hampered construction as the builders had to pass excessive costs on to potential buyers.
The demand for borrowers remains strong and is expected to continue as larger segments of the younger generations plan to buy real estate. In the future, cheaper wood prices should help the industry gain momentum and keep pace with ongoing demand.
"When the virus hit last March, the development and production of sawn timber was interrupted because the factories were closed for safety reasons," said Doug Duncan, chief economist at Fannie Mae, in an interview. “The demand for houses increased before it switched to getting the lumber yards up and running again. I think the futures market suggests that they have ramped up production and are making progress. "