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Why Are Lumber Prices About To Make All-Time Highs

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@rollandthomas
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Many cities were already seeing people move out of the cities, COVID-19 only expedited the migration. The last time I was in New York City to visit my month, it reminded me of the time when I took my mother back home after Hurricane Sandy. The streets of NYC were fairly empty, nothing like “the city that never sleeps.”

This morning I talked about the semiconductor chip shortage, but how events 12-18 months ago led to the current crisis. A very similar thing happened in the lumber industry.

At the onset of COVID-19 lumber prices declined as home builders construction halted their operations, leaving mills with excess supply of lumber. But all that has changes since the economy started opening up again last Spring. And as the inventory for lumber declined, mills could no longer keep up with demand which created a huge imbalance in the supply and demand equation for lumber. And as people continue to move out of cities, the huge imbalance in the supply of homes continues.

Despite lumber used for framing homes accounting for roughly 20% of the materials cost of building a home, homebuilders are just passing on the cost to the buyers. So has demand for homes continue, expect lumber prices to continue to move higher.

https://www.youtube.com/watch?v=fdrCEPiziFw

Video Source: https://www.youtube.com/c/CNBCtelevision/videos

With U.S. lumber prices at fresh record highs, construction companies and wood wholesalers are buying just enough to get by, threatening to make price swings even bigger.

“Everyone knows that current prices are stupid, but the choice is either pay up or run out,” Vince Bulic, president of Vancouver-area Yaletown Lumber Industries Ltd., said in a Jan. 22 note. “Comfortable prices do not seem to be on the near-term horizon.”

Prices on the physical market have largely tracked the rallies in futures prices, with some time lag, signaling higher prices are yet to come for buyers.

Source

After lumbers prices had a huge correction in January, it was actually a buying opportunity as the chart suggest prices will end the week at all-time highs.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

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