Is the Lumber Market At Risk?

  • June 12, 2024
  • 4 min read

Deterioration of the Lumber Industry Market
The last remaining market for the lumber industry is starting to deteriorate, and that was the um remodeling DIY project market. Obviously, new home building is still up, but a lot of the um home remodeling has been done. You know, people that had to stay in their house because of the pandemic or because of interest rates or because of the economy have done pretty much all they’re going to do on their homes. And now that the economy is deteriorating even further and interest rates are even higher, there is much less activity in home improvement. That’s starting to affect lumber yards.

Lumber Yard Shutdowns and Job Losses
One of our offices we have is in Oregon and the Oregon coast. There have been three lumber yards and lumber production com uh companies that have shut down in the last 90 days. Several hundred jobs have been lost. We’re seeing it in the Pacific Northwest, even as far north as Vancouver BC. Even in Pen, some of the hardwood yards are starting to cut back.

Economic Impact on Lumber and Construction
So what’s going to happen in the future? We’re already starting to see more and more of the E economic uh impact on lumber and even construction. Sure, there is still a backlog of new homes to be built. However, the demand is starting to fall off because of interest rates. When interest rates were, you know, 3-4%, obviously a big boom. Even when it went up to five or six, there was still a demand for people wanting to buy homes. Now that the price point has been elevated because of lumber cost and labor cost, interest rates are now almost 8%, 7 and a half to 8. Well, that’s going to price a lot of people out of the market.

Challenges in New Home Construction
And you can still build some new homes if you can keep them in the 4 to 500 range, but it’s very difficult in many markets to build for that much money. Look, a $500,000 house at 7.5-7.8%, that’s almost 4,000 a month for a mortgage payment. By the time you figure tax, insurance, in some markets you could be almost $6,000 a month, at least five, right? So there are people that can spend 60,000 a year on their home, but that market’s a lot smaller than when homes could sell for 250, you can get a 4% mortgage, and have a house for a couple thousand a month, 1,800 a month, right? It’s more than double.

Impact on Lumber and Home Improvement Chains
This has had a severe impact on the lumber industry, on um even as far down the pipeline as the home improvement chains are starting to have weakness. So what are you seeing in your market? What do you think is going to happen? What’s the labor market like in your area for contractors, for tradesmen?

Current State of Trade Markets and Lumber Prices
In most markets, specialized trades like electrical and plumbing are still busy, they’re backed up. But what about framing, insulation, roofing? What’s happening in your area with those trades, and is there any change to the lumber prices? Lumber prices did come down from their peaks a few years ago, but they’re still pretty high. We’re still seeing, you know, 4×8 um OSB, you know, in some markets 50 bucks for 34. We’re also seeing labor rates still high, 30-40 bucks an hour for, you know, relatively skilled trades. That’s having an effect on people doing upgrades to their home, and it’s taking the volume down a bit, which is going to even have more impact on the market and more impact on U, the percentage of home buyers and homeowners that can actually get a house.

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