Lumber prices have soared 230% in the last year, pushing timber and homebuilding ETFs to record highs

Lumber
  • Lumber’s 230% 12-month rally has pushed timber and homebuilding ETFs to record highs.
  • The iShares Global Timber & Forestry ETF has climbed 89% in the last year, Bloomberg first reported.
  • While the triple-leveraged Direxion Daily Homebuilders & Supplies Bull 3X Shares fund has surged roughly 100% year-to-date.
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Lumber has staged an incredible rally in the last year and is taking exchange-traded funds that track the commodity along for the ride.

The iShares Global Timber & Forestry ETF (WOOD) has climbed 89% in the last 12 months and now sits at a record high. The fund tracks global timber and forestry stocks and gained nearly 7% in premarket trading Tuesday but pulled back at the open. Bloomberg first reported on the funds record performance.

Meanwhile, the triple-leveraged Direxion Daily Homebuilders & Supplies Bull 3X Shares fund (NAIL) has surged roughly 100% year-to-date and is the second-best performing U.S. equity fund this year, according to Bloomberg data. NAIL seeks daily investment results of 300% of the performance of the Dow Jones US Select Home Construction Index.

Spot lumber prices hit a record high of $1,326 per 1,000 board feet on Monday, bringing the commodity’s 12-month gain to 231%. Soaring lumber prices are a sign of the pandemic-induced housing boom, fueled by record low mortgage rates and an exodus to the suburbs.

But the rising lumber costs have added more than $24,000 to the price of the average new single-family home, and timber companies are struggling to keep up with demand surge.

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Lumber prices could climb another 12% this year after hitting a record high in April, Piper Sandler strategist says

Logging facility, Vermot
A logging facility in Bristol, Vermont.

Piper Sandler’s Craig W. Johnson, CFA, CMT said he believes Lumber prices could “very easily” move above $1,300 per thousand board feet this year even after notching a record high in April.

That figure represents a 12% increase from Tuesday’s closing price of $1,154 per thousand board feet. Lumber prices have soared more than 250% in the past year alone.

In an interview with Insider, Johnson, a technical research market strategist, said that lumber prices have broken out of a “huge consolidation” that occurred from 2018 through 2020 and are set to soar amid the economic reopening.

Based on technical analysis, Johnson sees lumber prices continuing to rise to at least $1,300 over the next six to nine months.

The strategist noted that there is an enormous demand for housing and renovations that’s pushing lumber prices higher.

Johnson said that with interest rates as low as they are, there’s an overall sense that this is the lowest mortgage rate many people are ever going to get.

As a result of these low mortgage rates, a new work-from-home trend, and young people moving out of cities, home buyers are lapping up properties at historic rates, and that’s putting pressure on lumber supply.

Johnson also said that timber companies are struggling to catch up with demand after shutting down some of their operations during the pandemic.

The technical research strategist added that, based on what he’s been reading, timber companies won’t be putting more sawmills in place to meet demand either because they lack the economic incentive to add capacity.

Creating more sawmills is a capital-intensive process that requires producers to get permits, and that can’t be done quickly.

Johnson also said the upcoming hurricane season could exacerbate the lumber price issue by adding to demand.

When asked what could stall rising lumber prices, Johnson said that only the slowing of economic activity would cause prices to fall, but noted that right now he believes that’s unlikely as we are in the “great wide open” for economic growth post-pandemic.

Lumber traded up 2.7%, at roughly $1,212, as of 12:04 p.m. ET on Wednesday.

Watch it trade live here.

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Surging lumber costs have increased the average cost of a new house by $24,000

lumber and building materials store
  • Lumber prices have skyrocketed since the pandemic began, adding $24,000 to the price of new homes.
  • Demand for materials soared during the pandemic as supply tightened with factories idle.
  • The National Association of Home Builders chair said vaccine rollout should help bring costs down.
  • See more stories on Insider’s business page.

While the pandemic hit the US, everyone seemed to want their own house. With mortgage rates at record lows and no need to commute to work in cities for at least 2020, prices soared everywhere. But they’re also soaring because there isn’t enough wood out there: lumber, to be exact.

Now it’s clear how much the lumber shortage is adding to the skyrocketing price of new homes: a whopping $24,000.

That stat is courtesy of the National Association of Home Builders (NAHB), which found the price of an average family home increased by $24,386 since April, with the market value of a multifamily home increasing by $8,998 over the same time period.

A report from the NAHB in February said the lumber supply chain impact came as factories shut down almost immediately last March for safety reasons, and then as demand spiked, supply couldn’t keep up. Lumber prices have jumped by almost 200% since April 2020.

“The elevated price of lumber is adding approximately $24,000 to the price of a new home,” NAHB Chairman Chuck Fowke told real estate news site HousingWire. “Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month. Policymakers must address building material supply chain issues to help the economy sustain solid growth in 2021.”

Zillow’s Producer Price Index found that February’s 2.8% annual increase in sales was the strongest it had been since October 2018, meaning that while more houses are being sold, supply for building materials, like lumber, remain low and costly.

On March 12, the NAHB, along with more than 35 other housing organizations, wrote a letter to Commerce Secretary Gina Raimondo asking her to examine the lumber supply chain and look into solutions for the high costs.

“Housing and construction can do their parts to create jobs, boost the economy to its pre-pandemic strength, and provide safe and affordable housing for all Americans, but in order to do so the federal government needs to address skyrocketing lumber prices and chronic shortages,” the letter said.

Building 1,000 average single-family homes creates 2,900 full-time jobs and generates $110.96 million in taxes and fees, the letter said, emphasizing the economic benefits the government would reap in finding solutions to the expensive building materials.

Fowke told HousingWire that the continued rollout of COVID-19 vaccines will help decrease the costs of lumber since more mills will be able to safely reopen, and with more homes being built, home builder confidence should rise. (Homebuilder confidence fell by two points in March.)

The timeline on when material prices will decline is yet to be determined, but prices might start to come down with President Joe Biden on Monday promising 100 million COVID-19 shots in the next 10 days.

“Shots in arms and money in pockets – that’s important,” Biden said.

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