Lumber Prices Soaring Again Amid Uptick in Inflation

Inflation Hits the Lumber Market…Again

Lumber prices are climbing back up, dealing a blow to homebuilders Lennar (LEN) and Toll Brothers (TOL), which were looking forward to lower costs in the remainder of the year. Lumber futures are up nearly 40% since the end of August to around $627.50 per thousand board feet. Builders and lumber buyers were expecting prices to be more in line with the $357 average between 2015 and 2019.

Prices could move even higher to balance out supply and demand. Prices for two-by-fours skyrocketed in the spring only to come crashing back down. But trends are different now. This time, analysts are bracing for lumber prices to come down a bit but remain elevated for the coming years.

Supply-Chain Delays Keep Prices High

Lumber prices’ boom and bust earlier this year was held up by the Federal Reserve as an example of how soaring prices would come down in other industries as inflation eased. But that is not turning out to be the case, with inflation hitting a 30-year-high in August. The rise in inflation this year is broader than anticipated and more persistent, largely because of supply-chain issues. Component shortgages, shipping delays, and a lack of workers have slowed down supply chains across the globe.

The rise in lumber prices in recent weeks is also part of a broader uptick in the prices of commodities. In the third quarter natural gas prices jumped more than 60%.

Lumber Prices Could Weigh on Profits for Builders

Rising lumber prices have not hurt Lennar and Toll Brothers yet. The houses which these homebuilders completed construction on in recent weeks were built with lumber purchased when prices were soaring.

The companies expect their profit margins to improve in 2022 when they can construct homes with lumber purchased at lower prices. However, as wood prices rise again, materials costs may remain elevated for builders, which could weigh on their profits.

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