Lumber prices falling... a lot

clcustom1911

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  • Oct 23, 2017
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    Anyone in the industry know how long this will take to trickle down to the consumer market for construction costs?


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    Jethro3898

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    I think Choid is exactly right.
    End suppliers will not lower prices in the immediate timeframe due to stock on hand and/or material already on order that they may have paid the higher prices for.

    I deal with the same thing in my line of work with warehouses and service centers for steel.
    These guys know that quickly falling prices are worse for their business than quickly rising prices. the last thing they want to do is be stuck with 1,000s of tons of steel at $0.75 per lb, only for it to tumble down to $0.60 over the course of a couple of weeks. When that happens they are stuck with high price material they they cannot move.

    I would imagine this is similar to wood.

    I've been hearing about the falling price of lumber for about a month now. I have not yet noticed any meaningful decrease in price.
     
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    Maggot

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  • Jul 27, 2007
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    I built four new target stands in May and was shocked at the price for a minimal amount of 2x4" and plywood.
    Guess i should have waited.

    For while the local Lowe's wasnt even putting prices on the lumber it was going up so fast.
     

    Choid

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    There's not a lot of incentive to lower the prices if people keep buying. It will find equilibrium, but it's always a struggle. But this is the big debate about inflation, right? How much pricing power is really out there, and in which industries does it exist?
     
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    Huskydriver

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    Google price elasticity...

    Lumber is typically pretty inelastic so prices should fall theoretically faster than other commodities. Typically the more competition there is to produce something that is relatively inexpensive the more sensitive to price changes that product is because the cost to produce is usually pretty much standard across producers. To stay competitive as supply costs decrease, suppliers usually lower prices quickly.

    However with that said....it's anyone's guess
     
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    DIBBS

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    I have a couple projects... went to Home Depot... I will be waiting for some time to purchase lumber. Sticker shock for sure. I remember when you could get 8' 2x4's for a buck. ;) I was a LOT younger then...
     

    Choid

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    Google price elasticity...

    Lumber is typically pretty inelastic so prices should fall theoretically faster than other commodities. Typically the more competition there is to produce something that is relatively inexpensive the more sensitive to price changes that product is because the cost to produce is usually pretty much standard across producers. To stay competitive as supply costs decrease, suppliers usually lower prices quickly.

    However with that said....it's anyone's guess
    Long term I have no doubt that this will be the case. But long term is made up of all of the short terms, and that is where it is really up for grabs.
     

    Maggot

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  • Jul 27, 2007
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    I have a couple projects... went to Home Depot... I will be waiting for some time to purchase lumber. Sticker shock for sure. I remember when you could get 8' 2x4's for a buck. ;) I was a LOT younger then...
    A Lot younger is right.

    But then I remember both gas and cigarettes at $00.18 per gallon or pack.

    And when at the sawmill you could get rough cut oak or pine for about the same price.
     
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    NoDopes

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    Lumber is typically pretty inelastic
    Wait. what? I think you have that backwards. It's very elastic.. How many builders stop building homes due to the prices? How many people on here said they are postponing projects? It's the very definition of elastic. As opposed to something like... say... food?
     

    Huskydriver

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    Wait. what? I think you have that backwards. It's very elastic.. How many builders stop building homes due to the prices? How many people on here said they are postponing projects? It's the very definition of elastic. As opposed to something like... say... food?

    Quite few actually depending on where your building and I know of lots of people myself included postponing a basement remodel specifically due to lumber prices but that's just my laymans opinion.

    I agree food is inelastic and lumber is more elastic but my point was I don't think it's as elastic as some might think but it's hard to say where that's going given the amount of stimulus vs real demand in the market. If I thought it was very elastic I would be pretty bullish on the prices staying higher for longer but I don't think they will unless something either A has changed in the supply of lumber or B there is a legit change in demand. There very well could be if there is a ton of pent of demand for lumber and people just say F it and build anyway regardless of price you could very well be correct.
     

    Maggot

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  • Jul 27, 2007
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    Quite few actually depending on where your building and I know of lots of people myself included postponing a basement remodel specifically due to lumber prices but that's just my laymans opinion.

    I agree food is inelastic and lumber is more elastic but my point was I don't think it's as elastic as some might think but it's hard to say where that's going given the amount of stimulus vs real demand in the market. If I thought it was very elastic I would be pretty bullish on the prices staying higher for longer but I don't think they will unless something either A has changed in the supply of lumber or B there is a legit change in demand. There very well could be if there is a ton of pent of demand for lumber and people just say F it and build anyway regardless of price you could very well be correct.
    That seems to be whats happening. Around here they are building (apts/condos/townhomes/very few single family homes) at record pace. They just pass the cost along. There is a great shortage of available housing...gotta have a place to put all the proletariats, illegals, and imported Muslims, ya know.
     

    Choid

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    Quite few actually depending on where your building and I know of lots of people myself included postponing a basement remodel specifically due to lumber prices but that's just my laymans opinion.

    I agree food is inelastic and lumber is more elastic but my point was I don't think it's as elastic as some might think but it's hard to say where that's going given the amount of stimulus vs real demand in the market. If I thought it was very elastic I would be pretty bullish on the prices staying higher for longer but I don't think they will unless something either A has changed in the supply of lumber or B there is a legit change in demand. There very well could be if there is a ton of pent of demand for lumber and people just say F it and build anyway regardless of price you could very well be correct.
    This is actually really interesting. Here is a chart of the price elasticity of lumber (pine) over four successive one year periods.

    • 2007-2008 = 0.7002
    • 2008-2009 = 0.3069
    • 2009-2010 = 0.2337
    • 2010-2011 = 0.1697
    Which would say either that it is inelastic, getting more inelastic, or that it sits in the inelastic range but varies a ton from period to period. Of course, those were not normal years either, and you would expect more elasticity in 07, but still...
     

    thestoicmarcusaurelius

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    Here's something else to think about. The total cost of a mortgage loan and the overall affordability of your home, not just material prices.

    On a $400,000 mortgage amount, every 1% increase in your interest rate is going to increase the total cost of the mortgage about $80,000.00.

    Even with building materials where they are now, it is still a more affordable time to buy than it was in 2005.

    Just something to think about for anyone that thinks interest rates may be rising. Doubtful that material prices increases from beginning of year to now will be more than the additional amount you pay on your total mortgage cost for even a 1-2% interest rate hike.
     
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    E. Bryant

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  • Oct 25, 2010
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    How much pricing power is really out there, and in which industries does it exist?

    From my narrow perspective in automotive, the price-increase conversations are just starting for projects that don't already have commodity cost adjustments built into the contracts. So if you're building wiring harnesses you may already be getting paid more because you've indexed your prices to raw copper costs. If you manufacture something like PCBAs then you probably didn't index accordingly (there historically was little reason to do so and no readily-available index to utilize) and thus you're now trying to convince your buyers at the OEs to give you more money for the same part or else you'll violate your contact by not shipping, or that you're getting ready to declare force majeure. You can imagine how these conversations go :ROFLMAO:

    So, there's your pricing-power report from a very narrow slice of commerce. I imagine other industries are doing better, judging by the fact that they have successfully pried more money from my pocket (although I did draw the line at $32.99/lb for beef tenderloin at my local big-box grocery store).
     

    Ruger1300

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    Check out the uneducated economist on YouTube. He works in a lumber yard and some pretty interesting videos concerning lumber prices.
     

    AngryKoala

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    I have a couple projects... went to Home Depot... I will be waiting for some time to purchase lumber. Sticker shock for sure. I remember when you could get 8' 2x4's for a buck. ;) I was a LOT younger then...

    $9 per 8' 2x4....I about shit my pants. My wife asked me if we were getting a deck this year, I couldn't help but laugh.
     
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    Mr.BR

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    Still not trading in my fossil fuel-based carbon fiber barricade made at the height of lumber price bubble , for a wooden one :devilish: