Lumber prices spike above $1,000 for the first time since mid-June as hot housing market drives renewed demand

lumber workers housing homebuilding
  • Lumber prices jumped 5% to more than $1,000 for the first time since mid-June on Thursday.
  • The commodity is 41% below its record high, while its up 127% from its recent low.
  • Driving the volatile lumber prices is steady demand for homes combined with dwindling supply.

Lumber prices surged 5% on Thursday to $1,024, jumping back above the $1,000 per thousand board feet level for the first time since mid-June as the commodity experiences heightened volatility amid supply chain issues and steady demand from home builders.

Lumber has experienced a wild 2021. Prices peaked above the $1,700 in May and subsequently fell as much as 74% before bottoming around $452 and rebounding 127% to its current level. The commodity is still down 41% from its recent high, and is only up 12% year-to-date.

The volatility has been driven by various floods in Canada, sustained demand for homes in the US, and a dwindling supply of single family homes.

The total inventory of single family homes for sale in the US has been steadily declining since 2015, when it stood around 1.25 million. Today there are only 350,483 single family homes for sale in the US, according to data from Altos Research. The figure hit a low of 307,000 on April 30.

Driving the demand for homes is record low interest rates, which means low mortgage rates that increases a borrowers purchasing power, and an aging millennial population that is steadily graduating from student debt to mortgage debt.

Where lumber prices go from here is anyone’s guess, but TradeStation’s David Russell expects the volatility to normalize going forward.

“This is the aftershock of that huge earthquake,” Russell told Insider, referring to the spring price rally. “After this, we will see the volatility decrease and things will start to stabilize.”

Lumber prices
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4 reasons why lumber prices have doubled from summer lows — and why one expert sees them normalizing again

Worker loading lumber
  • Lumber prices are on the rise once again and have doubled from summer lows.
  • A confluence of factors is putting upward pressure on the red-hot commodity but experts say lumber will normalize.
  • Lumber futures rose for the fifth-straight session on Friday, hitting $930 per thousand board feet.
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The price of lumber has doubled from summer lows after a confluence of factors put upward pressure on the red-hot commodity, but some normalization may be on the way soon.

Lumber futures rose for the fifth-straight session on Friday, hitting a six-month high of $930 per thousand board feet and gaining 21% for the week. Still, they’re 45% below their record high of $1,711 reached in May. 

Analysts have highlighted four key factors contributing to the recent spike.

1. Floods in Canada

The main cause is severe flooding in British Columbia that has hampered the operations of West Fraser Timber, one of Canada’s largest lumber producers, according to Ross Price, director of finance at commodity trading platform Mickey Group.

West Fraser on November 30 said the natural disaster caused transportation disruptions to its rail and truck routes, including limiting access to ports for overseas shipments.

“This has closed roads and caused one of the world’s biggest producers of lumber to pause shipments,” Price told Insider, adding that the US gets most of its lumber supply from Canada. “From my perspective, it doesn’t make much sense for a supplier to produce more than they can actually ship right now.”

2. Hoarding 

Exacerbating this issue is construction companies that are hoarding materials to avoid shortages, said Vanessa Miller, a partner at international law firm Foley & Lardner.

“This is actually creating the same type of shortages that we saw early on in the pandemic,” she told Insider, noting the infamous toilet paper stockpiling the US saw last year despite the lack of an actual shortage.

If the lumber supply chain was functioning properly, the price increases would not be so dramatic, Miller added.

3. US tariffs

Adding to lumber prices is a trade dispute, in which the US has accused Canadian suppliers of dumping. Late last month, the Commerce Department confirmed it will impose a nearly 18% tariff on imports of Canadian softwood lumber producers in 2022 — more than twice the rate of 8.99% during the Trump administration.

The Biden administration initially unveiled the plan in May, causing some lumber yards to stock up and increase their orders before the tariffs kicked in.

4. Hot housing market

Tying these all together is the sustained, elevated focus in home building and home improvement since the start of the pandemic.

While the Federal Reserve has started to curb bond buys, its ongoing emergency stimulus policies continue to keep mortgage rates low, stoking further demand in the housing sector. And with the work-from-home trend continuing, Americans are still feeling free to hunt for new homes in new markets.

Why another pullback is likely on the way

Traders can expect lumber prices to retreat in the near term as mills come back online and consumer behavior — along with overall economic activity — return to normal.

Still, don’t expect prices to fall all the way back to pre-pandemic levels, David Russell, VP of market intelligence at TradeStation Group, an online broker-dealer. But the likelihood of a return to May’s peak levels is “also probably overreacting,” he told Insider.

Instead, he sees lumber prices settling around $500 to $600 per thousand board feet, roughly 45% lower than the current levels.

“This is the aftershock of that huge earthquake,” Russel said, referring to the spring price rally. “After this, we will see the volatility decrease and things will start to stabilize.”

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Lumber prices have risen 50% since August, and 2 experts say the resurgence will continue through early 2022

Lumber prices sawmill US logs wood
  • The price of lumber has seen a resurgence, which analysts expect will continue through early 2022.
  • A reason for the price increase in lumber is another wave of renovation demand, an analyst told Insider.
  • The analyst doesn’t expect lumber prices to roar back to their pandemic highs.
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One of the pandemic’s hottest commodities is staging a comeback, rising 50% since August and gaining for the sixth consecutive week.

The price of lumber – after steadily declining since its all-time high in May – is expected to continue to tick higher through early next year, experts told Insider.

Lumber futures as of October 8 were hovering around $713 per thousand board feet – still 58% lower than the record high of $1,711 achieved in May as supply chain disruptions and demand for housing drove an incredible boom for the commodity. A year ago, the lumber futures were trading at roughly $586 per thousand board feet.

But after prices bottomed out below $400 per thousand board feet in late August, they have since recovered by $100 per thousand board feet in just over a month, data from Fastmarkets Random Lengths Framing Lumber Composite Price showed.

A reason for the price increase in lumber is a modest increase in renovation demand after price-sensitive buyers proceeded with home improvement projects now that wood prices have seen a substantial correction, Dustin Jalbert, senior economist at Fastmarkets, told Insider.

Though Jalbert does not expect the kind of runup in lumber prices seen earlier this year – a period when there was a backlog of homes waiting to be built and a shortage of key construction supplies – as pandemic-related supply constraints continued to ease.

“The market has finally transitioned to a more balanced state compared with being severely oversupplied in the summer months, which ultimately drove the massive correction in prices from record-high levels set in May,” Jalbert told Insider.

And even if Americans wanted to build and renovate homes, the field consumption of lumber is being bogged down by shortages of other complementary materials such as windows, siding, cabinet appliances, and garage doors, he added.

The supply side, meanwhile, continues to face challenges, Jalbert said. Log costs in British Columbia, which accounts for about 16% of North American lumber capacity, remain elevated.

Tariffs on Canadian lumber will also likely double from 9% to about 18% by November, pending the Department of Commerce’s final determination, he noted. Such an outcome will raise production costs on lumber shipments to the US market, which will ultimately put further upward pressure on lumber prices, Jalbert added.

Chip Setzer, director of trading and growth for Mickey Group, a commodity trading platform, also does not see lumber prices skyrocketing, not even past $1,000 per thousand board feet, he told Insider. While prices are historically elevated, he said the range lumber prices are currently in now is a fair valuation.

“I like that number,” he said, adding that the price floor of the commodity may have permanently moved higher compared to the roughly $300 per thousand board feet pre-pandemic. “It’s good for the forest. It’s good for the guys who work in the sawmill … It’s good across the board.”

Setzer also said that while the market may see some slowdown into year-end, it will also see an uptick by the second quarter of next year. “People are still under-housed,” he said.

Lumber prices at the start of the year surged, along with energy prices, like oil and natural gas, and used car prices, pushing up inflation to 30-year highs. Demand across commodities has since cooled as consumers absorbed the sky-high prices and as the economy reopened.

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Lumber prices are on the rise again after a brief reprieve this summer, adding to concerns of lingering inflation

Lumber
  • Lumber prices have jumped 50% since mid-August, reviving an inflationary pressure that helped send home prices higher.
  • While lumber prices are still 60% below their record high, they are well above pre-pandemic levels.
  • The surge in lumber, energy, and even used car prices could lead to higher inflation and put pressure on the Fed for a policy change.
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Lumber prices are back on the rise.

The integral homebuilding material has surged about 50% from its mid-August bottom of $448 per thousand board feet. That’s after falling about 60% from a record high of $1,733 in early May, as supply chain disruptions and an insatiable demand for homes drove an incredible boom and bust cycle for the commodity.

Lumber prices are still 70% higher than their pre-pandemic levels of around $400 per thousand board feet. That price difference is being felt by everyday Americans. A report from the National Association of Home Builders earlier this year found that lumber’s price surge added an average $36,000 to the cost of building a new home.

And home builders like KB Home have indicated to analysts that despite lumber’s spectacular rise and fall, it’s likely not going to lower the price of its homes and pass along cost savings to the consumer after the company raised its prices to account for sky-high lumber prices, according to KB Home’s second quarter earnings call.

“And what’s your sense if the lumber costs start to go down and supply chain issues start to resolve themselves? Is it your sense that pricing is going to stay up here and margins are going to expand or is it your sense that somehow the prices are going to start to work your way back down as — in other words, will builders pass along some of the cost savings when they will start to happen?” Alex Barron of Housing Research Center asked KB Home CEO Jeff Mezger.

“Our hope and expectation is, we’ll take it to margin,” Mezger responded, indicating that the company has no plans to pass along the cost savings derived from the steep 60% decline in lumber prices over the past five months.

Lumber is a key building block of the US economy, and its rising prices have helped push up inflation to 30-year highs. So has a surge in energy prices, like oil and natural gas, and a resurgence in used car prices, which have hit new records as automakers deal with an ongoing shortage in semiconductor supply.

While Fed Chairman Jerome Powell has stood by his view that inflationary pressures will be transitory as supply chain bottle necks eventually resolve, he may be forced to make a policy change if inflationary pressures last well into 2023 and beyond.

Raising interest rates and ending the monthly taper program are two key levers Powell can use to combat inflation, but those changes could put pressure on stock prices, which have been conditioned to be on the receiving end of some form of monetary easing since the 2008 financial crisis.

Yet, in a period of rising inflation, Wharton Professor Jeremy Siegel believes that stocks are one of the best assets to own as a hedge to rising prices. The thinking goes that businesses with real assets can pass along price increase to its customers, thus boosting profits, as KB Homes is doing now.

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3 reasons why lumber prices will tumble 30% by year end, according to a veteran portfolio manager

A crane lifts logs onto a stack at the timber terminal in the seaport of Wismar.
  • The price of lumber has yet to bottom – and will fall as much as 30% off by the end of the year, Micheal Gayed says.
  • Gayed is an award-winning portfolio manager for Toroso Investments who has long touted lumber as a powerful indicator for the US economy.
  • He gave three reasons why lumber could fall to $357 per thousand board feet by the end of 2021.
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The price of lumber has yet to bottom and will shed as much as 30% by the end of the year, veteran portfolio manager Micheal Gayed said.

This means the commodity could slip to as low as $357 per thousand board feet, from around $510 per thousand board feet lumber was trading at on August 27.

Gayed, an award-winning portfolio manager for Toroso Investments who has long touted lumber as a powerful indicator for the US economy, said there are three reasons the commodity will see a protracted slide.

First is the slow down in housing construction as elevated prices dissuade buyers and sap demand, he said. The market is set to reverse, and if housing cools, so will construction, he added. Various data show that the housing crisis is getting worse in the US.

“Lumber is sort of your closest real-time gauge of housing activity,” Gayed, who also runs the ATAC Rotation Fund, told Insider. “Housing activity is probably just due to slow down aggressively.”

Lumber prices have slipped 70% from record highs of $1,711 reached in May. Prior to that record, prices had skyrocketed more than 500% during the COVID-19 pandemic amid supply-chain disruptions.

Gayed’s second reason is an oversupply in lumber as sawmills rushed to meet demand, he said. Lumber production, which starts in the mills, was severely disrupted when much of the economy shut down.

But now, many analysts see North America’s biggest lumber producers set up for a rebound following an immense blow during the height of the pandemic caused by lockdowns and raging wildfires.

The third reason, Gayed said, is that the market will soon realize that inflation is indeed transitory. Lower inflation typically results in lower Treasury yields, and yields, he says, generally move in the same direction as lumber.

Gayed is well known for his 2015 report on the relationship between gold, lumber, and the economy, and when to play “offense” and “defense.”

If lumber is outperforming gold in roughly four months, Gayed said, investors should take a more aggressive stance as this indicates economic strength. If gold is outperforming lumber in the same time period, he advises investors to do the opposite.

A final reason lumber could see a further downturn – one which Gayed says is less talked about – is the looming crisis related to the debt ceiling, which US Republican lawmakers have recently signaled they will not lift.

“The implication is that if S&P and Moody’s downgrade US debt like they did in 2011, and the reaction is the same, it … would broadly hurt economic activity.”

Gayed pointed to the massive correction in 2011 when the US stock market crashed after a credit rating downgrade by S&P – the first time the country was downgraded.

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The global coffee supply chain is suffering as 2nd-biggest grower Vietnam locks down travel amid renewed virus fears

dalgona coffee
  • The global coffee supply chain is suffering as Vietnam – the world’s second-biggest grower – imposes a strict travel lockdown.
  • This comes amid renewed fears of a COVID-19 outbreak as fatalities and deaths in the nation spike.
  • This recent mandate affected some key producing areas of the Central Highlands, Bloomberg reported.
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The global coffee supply chain is suffering as Vietnam – the world’s second-biggest grower – imposes its toughest travel restrictions to date amid renewed fears of a COVID-19 outbreak amid spiking infection numbers.

Vietnamese authorities on August 20 said they would deploy troops in Ho Chi Minh, the country’s biggest city and its export hub, to prohibit residents from leaving their homes, Reuters reported.

This recent mandate affected some key producing areas of the Central Highlands, according to Bloomberg. This area is also known as the “Kingdom of Coffee,” according to local media, as it is home to roughly 570,000 hectares of coffee trees.

Exporters have been scrambling on getting their beans to the port for shipping amid a surge in freight rates and a shortage of containers. Some traders have urged the government to ease the clampdown, saying they will have to bear the brunt of late deliveries, Bloomberg reported.

The city, with its 9 million people, has been the epicenter of the virus, making up almost half of the infections and 80% of fatalities.

Global coffee prices have soared thus far due to numerous factors including drought in Colombia, damaged crops in Brazil, plant funguses, and a huge backlog of coffee waiting to be shipped.

Apart from coffee, commodities in general, from lumber to oil, rallied due in large part to distorted supply chains brought about by the pandemic.

Read more: Famed investor Laszlo Birinyi just earned a nearly 300% profit after exiting a bullish stock market trade. He lays out why he’s betting on more market-wide gains, and shares the 10 stocks in his growth portfolio.

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2 reasons why lumber prices will tumble another 28% from 13-month lows, according to one analyst

Logging wood for the Vyatsky Plywood Mill owned by Segezha Group in a forest in the Nema District. A subsidiary of AFK Sistema, Segezha Group is a fully and vertically integrated timber holding employing advanced wood processing technologies. Alexander Ryumin/TASS

The price of lumber slipped to a 13-month low on Wednesday and the commodity could see a further slide of 28% by the year-end, according to Naeem Aslam, chief market analyst at AvaTrade, an online broker.

Aslam said he sees lumber trading as low as $330 per thousand board feet by the end of 2021 or in the first quarter of next year, reflecting the 28% downside from current levels.

“Now is definitely not the time to fish that bottom,” Aslam told Insider. “There is a huge correction ahead … Prices will continue to fall from here.”

He gave two reasons for his outlook.

First, when the Federal Reserve starts to tighten its monetary policy, the housing market, he said, will cool as rates rise. Speculation that the central bank will taper assets sooner than expected has been rising amid a robust economic rebound this year.

“The housing sector has built up a massive backlog,” he told Insider. “How that backlog was built was because of extra cash which was injected.”

Aslam was referring to the three rounds of stimulus checks millions of Americans received in the wake of the pandemic. But now that a fourth stimulus check is unlikely given the accelerating pace of the recovery, demand, he said, will abate.

“The reality is that helicopter money really pumped up the massive demand in terms of material,” he said.

Aslam also noted the shortage of affordable homes for sale in the US has persisted for years.

Second, when China accelerates the pace at which it releases inventory from its strategic reserves, there will be an oversupply in the commodities market, which will push prices, including the price of lumber, down.

The Asian superpower has been trying to cool surging prices – including oil, coal, and metals – by releasing stockpiles as the world’s second-biggest economy looks to bring manufacturing costs down amid rising inflation.

“We see China cracking down massively,” he told Insider. “That is going to bring the prices lower for these sorts of assets.”

Lumber futures as of August 18 were hovering around $458 per thousand board feet – 73% lower than the record high of $1,711 achieved in May. In July last year, it was trading at $438 per thousand board feet.

Lumber prices skyrocketed more than 500% in the 15 months after the COVID-19 outbreak as supply-chain disruptions collided with a demand for housing and activity from homebuilders.

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Lumber prices have tumbled 70% in the last 14 weeks following a blistering rally as record-setting demand slows

lumber and building materials store
  • The last 14 weeks have seen lumber fall to around $500 per thousand board feet, down 70% from its all-time high in May.
  • Now some analysts are calling a bottom while projecting flatter prices in the months ahead.
  • Even if lumber prices normalize around $500, that’s still elevated compared to pre-pandemic levels.
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For how steep the run-up was, lumber’s plunge has been even more disorienting.

Starting its ascent in late October 2020, lumber climbed to a peak of $1,711 over the course of seven months. But it took just 14 weeks to see all those gains erased.

The last 14 weeks have seen lumber swiftly give back its gains, with the latest prices – near $500 per thousand board foot – down 70% from its all-time high in May. Now, some analysts are calling a bottom while projecting flatter prices in the months ahead.

“We’re going to see a stabilization,” Mace McCain, CIO at Frost Investment Advisors, told Insider previously. “We’re out of the panic buying. We’re out of the massive industry shortages. We’re out of the extremes.”

McCain said that the housing market has been behind much of the movement in lumber. As a homebuilding boom swept the US, construction firms scrambled to get their hands on lumber, sometimes buying more than was necessary for fear of running out.

But now, higher prices have cured high prices in other areas. Expensive houses have dissuaded house-buying, putting downward pressure on lumber.

On the production side, a recent survey of lumber brokers and manufacturers, who once hoarded the commodity, found that 49% are now facing excess inventory – another downward signal. No surveyed lumber producers reported “very tight” inventory in July.

Ed Egilinsky, managing director and head of alternative assets at Direxion, previously told Insider that he expects $500 to be lumber’s price floor and that it could even experience a rebound into the $600 region in the next 24 months.

To be sure, bouncing back to $1,700 is probably not on the cards, but Egilinsky said the combination of sawmill labor shortages, wildfires, and possible Delta variant shutdowns could crimp supply and give lumber a modest boost.

Other analysts are shooting a bit below $500. The commodities team at BMO Capital Markets looked at the share prices of three Canadian sawmill firms to derive a market-expected lumber price of $447 in 2022. Their result was first reported by the Wall Street Journal.

Yet even if lumber prices normalize a touch above or below $500, that is still a ways away from the old, pre-pandemic normal. By contrast, the average weekly lumber price in 2019 was $372. Between 2011 and 2019 – after the financial crisis housing bust had largely passed – the average was just $337.

Read more: Goldman Sachs names 31 stocks to buy as the economy reopens despite the looming threat of the COVID-19 Delta variant

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Lumber prices have already bottomed – and 3 forces will drive them higher going forward, one investment head says

Lumber prices sawmill US logs wood

The price of lumber has already bottomed after a sharp sell-off and should stabilize around current levels in the coming weeks, according to Ed Egilinsky, managing director and head of alternative assets at Direxion.

Lumber futures traded slightly lower around $530 per thousand board on Monday, and sit nearly 70% below a record high of $1,711 reached in May. Prior to that record, lumber prices had skyrocketed more than 500% during the immediate aftermath of the COVID-19 pandemic amid supply-chain disruptions and accelerating homebuilder growth.

Egilinsky said he sees the recently tested $500 level as a support level for the commodity, even though it’s still elevated relative to pre-pandemic pricing.

“I think it’ll stabilize here relative to the downtrend that it’s seen pretty much since the middle of July,” he told Insider.

Egilinsky laid out three specific drivers he sees underpinning lumber in the coming weeks. These in confluence should significantly curtail the supply of lumber and push prices higher, he said.

First is the tightening labor market. Egilinsky said this is the reason why fewer mills are in operation.

His assertion was supported by new data that showed job openings in the US soaring to a record 10.1 million in June, which exceeded the number of available workers for the first time since the pandemic.

Second is the raging wildfires.

“Fewer mills are in operation due to the wildfires,” he said, adding some of the impacts of these remain unforeseen.

These fires, for instance, have already affected major players, such as Canfor, one of the largest lumber producers in the US. The company on July 20 announced cutting back output at its mills in British Columbia.

Third is the emerging Delta variant.

Egilinsky said the threat of the new strain might risk the shut down of sawmills, disrupting yet again a supply chain that is just about to bounce back.

“[Sawmills] may need to be shut down for any period of time,” he told Insider.

Read more: Credit Suisse says buy these 21 growth stocks now as it’s the perfect time for them to thrive while rates fall – and to minimize the risk of losses

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Lumber prices look cheap after 65% plunge given Americans still want new houses, says Aberdeen Standard strategist

Housing market
US house prices have soared in 2021, increasing demand for lumber.

  • Lumber prices currently look cheap, following a 65% plunge, Aberdeen Standard’s Robert Minter said.
  • The investment strategist said prices should be supported, given that Americans still want to move home.
  • However, there are some signs that the US housing market is cooling, with family home sales falling in June.
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Lumber prices currently look cheap following their 65% drop from May’s all-time high, given that Americans still want to buy new houses, according to Aberdeen Standard Investments strategist Robert Minter.

Prices for lumber futures soared in the early part of the year to a record high of above $1,700 per thousand board feet amid strong demand for new houses and a home-improvement craze. But they have since tumbled round 65%, as suppliers have ramped up output and demand has cooled.

However, Minter, who is a director of investment strategy at Aberdeen, told Insider earlier this week that lumber currently “looks a little cheap.” He said the COVID-19 story is far from over, and many Americans are still keen to move houses if their companies allow them to keep working from home.

“People are moving from where they had to live to work to where they want to live,” he said. “All the people that want to move out of the city center and the near suburbs to someplace cheaper, those people have not all moved.”

Read more: Hakan Kaya’s fund is one of the top performers in the world in the last year. He told us 4 commodities he’s still betting on for the best long-term returns, and why he doesn’t bother investing in stocks.

Minter pointed to the fact that some housing companies have simply stopped taking orders as construction costs climb and labor shortages hit. He said this means that there is “demand yet to show up in the market.”

The US housing market remains red-hot. The closely watched S&P Case-Shiller house price index rose a record 16.6% year-on-year in May, up from 14.8% in April. New housing starts rose 6.3% month-on-month in June to an annualized rate of 1.64 million, according to the US Census Bureau.

Lumber prices have picked up slightly over the last two weeks, with the futures contract rising from below $540 per thousand board feet in the middle of July to above $600 in August.

However, there are signs that the housing boom is slowing, with sales of new single family homes falling 6.6% month-on-month in June, according to the Census Bureau. Applications to build also fell in June, hinting at a slower pace of construction in the coming months.

Some analysts expect lumber to keep falling until it gets back to pre-pandemic levels, as supply and demand balance out. “If it is mean reversion, you can’t stop at these levels,” fund manager Michael Gayed of Toroso Investments told Insider in July.

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