The overall price of lumber rose 1.6% in the week ending August 16. After falling to their lowest level since April 2020, lumber prices have now risen for five consecutive weeks.

NAHB continuously tracks the latest lumber prices and futures prices, providing an overview of developments in the U.S. lumber market. Information is obtained each week from the Random Lengths Lumber Composite Price, which is comprised of prices from the highest volume producing regions of the U.S. and Canada. A summary of other lumber prices, including plywood prices, is provided below.

Prices and trends in the US lumber market

Summary of weekly lumber and plywood prices for the week ending August 16, 2024:

• The price of random length composite lumber increased by 1.6% compared to the previous week.
  • Prices rose 7.8 percent last month, but are still 7.6 percent lower than a year ago.
• The price of lumber futures rose 5.3 percent and traded at a premium of over $100.
  • Prices are 0.8 percent higher than a year ago.
• The price of structural panel composites increased by 0.6% compared to the previous week.
  • OSB prices fell by 0.9%.
  • Prices for Western Fir plywood rose 0.1%.
  • Southern Yellow Pine plywood prices rose 2.8%.

Key factors influencing wood prices

Softwood lumber prices have been particularly volatile in recent years, largely due to increased demand, rising tariffs, supply chain bottlenecks and insufficient domestic production. To reduce high lumber prices, NAHB has advocated the following measures:

• Negotiate a long-term agreement with Canada to reduce tariffs and boost timber imports.
• Increase domestic production by pursuing higher targets for timber sales on public lands and releasing additional federal forest lands for timber harvesting.
• Reduce U.S. lumber exports to China and other international customers.
• Develop new markets to reduce our country’s dependence on timber imports from Canada and offset our domestic shortage.
• Identify new markets (other than Canada) and work with countries that already export softwood lumber to the United States to increase their exports here.

Influence of wood and lumber prices on the cost of a new house

In addition to narrowly defined lumber, products such as plywood, OSB, particle board, fiberboard, shingles and roofing shingles make up a significant portion of the total materials (and cost) of a new home.

Research from the Home Innovation Research Lab shows that the average new single-family home uses more than 2,200 square feet of softwood plywood and more than 6,800 square feet of OSB, as well as about 15,000 feet of lumber. Softwood is also used for certain finished products in home construction – particularly cabinets, windows, doors and roof trusses.

To account for the manufacturer’s profit margin, sawmill prices for the lumber included in these products are increased by the percentage difference between the revenues and the cost of goods manufactured in the Manufacturing of Wood Products industry, as reported in the IRS’s Returns of Active Corporations tables.

The final price for homebuyers is slightly higher due to factors such as interest on construction loans, realtor fees, and margins required to raise capital and obtain construction loans. As explained in the NAHB’s study on regulatory costs, the final home price will be nearly 15% higher than the builder’s costs for elements used during the construction process.

The bottom line is that changes in the price of softwood lumber have a direct impact on the price of a new home. This, along with rising wages for construction workers and higher interest rates, is one of the reasons the housing market is becoming less affordable.

When will lower lumber prices reach builders?

Home builders and remodelers benefit from price reductions once factory prices have dropped significantly and/or stabilized over a sustained period of time. Note that large price reductions alone may not be enough. Prices must fall long enough to sufficiently reduce a supplier’s average cost after an increase.

Depending on the speed and persistence of the price declines and whether prices have stabilized at the lower levels, it may take at least a few weeks to a few months for builders to see a price reduction in the order originally reported in the lumber futures or spot markets.

The length of this “waiting period” for lumber price reductions varies depending on the size of the builder, the size of the supplier, and the specific relationship between the builder and supplier. Buying power is positively correlated with the size of a residential builder, while the same is usually true for the selling power of suppliers. The relative difference in market power between buyer and seller is critical to how quickly lower prices are passed on to a customer.

Why do lumber costs rise so quickly with market prices?

In contrast to the dynamics of a falling price environment, higher prices reach builders much more quickly when market prices rise. The same forces that cause large lags relative to mill prices on the way down may explain why builders’ lumber costs can rise at the same time as mill prices.

Wholesalers tend to be “trigger happy” when prices spike. Since the cost of their inventory is low compared to cash prices during these times, they will bid at or near current market prices. In this environment, wholesalers can be sure to buy low and sell high.

However, wholesalers cannot predict when a bull market will end and buy their lumber based on how likely they think it is to continue. Because different buyers may have different forecasts, differences in buying behavior can occur. A wholesaler who expects lumber prices to continue rising for two months will buy more inventory than one who expects the upswing to last only two weeks.

Retailers generally have less buying power than wholesalers have selling power. In such a scenario, the retailer (e.g., a lumberyard) is called a “price taker.” As a result, its carrying costs tend to rise in step with market prices.

These higher costs are passed on to construction companies to maintain positive operating margins. Because of this, lumber merchants are less likely than wholesalers to make above-average profits when prices rise.

The above analysis was written by Jesse Wade, NAHB’s director of tax and trade policy analysis. Mr. Wade is an expert in tracking and analyzing short- and long-term trends in commodity prices, particularly lumber, steel, gypsum and other building materials used in home construction.