The Wall Street Journal reports that lumber prices have plummeted back to their pre-pandemic levels:
Lumber prices have fallen to their lowest level in more than two years, bringing two-by-fours back to what they cost
before the pandemic building boom and pointing to a sharp slowdown in construction.
....Two-by-four prices nearly tripled the prepandemic record in an early sign of the inflation and broken supply chains that would bedevil the economic reopening. But lumber has led the way down for commodities since the central bank took aim at rising consumer prices and the overheated housing market.
Please stop it. The Fed didn't start its aggressive rate hike campaign until June. Lumber prices had been falling since February and had already finished their descent by mid-year. The Fed obviously had nothing to do with it. In fact, the Fed's campaign to throw the economy into recession still hasn't had any effect and probably won't until the end of the year. Anything that happens between now and then most likely would have happened regardless of what the Fed has done.
POSTSCRIPT: The real explanation, of course, is that the housing market started to droop at the beginning of the year and that affected the lumber market. There might also be some international trade issues involved. But not the Fed.
KDrum, a couple more ticks on the X axis would have been nice.
I love how the WSJ abruptly becomes a Big Government cheerleader when it comes to crushing wage growth, even to the point of making things up to give them credit.
Sorry, I meant inflation, that's totally why they're doing this, not wage growth, nosireebob.
Housing construction hasn't slowed enough for that to be the reason.
The reason is that the start of the pandemic severely impacted lumber supply by curtailing sawmill operations, while simultaneously increasing demand (it's not just new construction that demands lumber - renovations and additions do as well).
The prices coming back down simply reflect the easing of the supply pressure as sawmills finally got caught up - that's not the ONLY reason, but it's the biggest.
"The real explanation, of course, is that the housing market started to droop at the beginning of the year and that affected the lumber market"
That statement, while true, is only a portion of the explanation. During Covid, many lumber mills reduced staff: working in a mill requires training and thus, for a time, domestic mills were under staffed/had reduced output. Further, a smaller issue was forestry supply. Some lumber is imported (soft wood from Canada, hard woods from Brazil etc): similar to many industries, transport issues impacted the lumber industry.
Add to this the spike in demand for COVID-era renovations and additions for existing homeowners, and...
I mean, does anybody else remember paying 3x as much for the same piece of lumber in mid-2020 through 2021?
Not to mention yet another round of "countervailing duties" on Canadian lumber.
"The housing market started to droop.." That was surely due to the rapid rise in mortgage rates that started around January of this year. And that increase in mortgage rates was caused by ... (drum roll) expectations that the Fed would be tightening throughout the year.
I just don't understand Kevin's rhetoric on the Fed these days. The housing market is the one place where Fed action (and in fact expectations of Fed action) are most obvious. He MUST know this. How could he possibly not know this?
Housing permits dropped for same reason...which also affects major appliances
Interestingly, most appliances manufacturers aren't complaining.......
Kevin wishes to keep money cheap.
The nature of the dollar right now makes money cheap, but it was that way in 2015 as well.
He sure does. And he may be right! I am perfectly willing to entertain the idea that the Fed has does enough to tighten financial conditions and that they should pause rate hikes for a bit. I’m not convinced, but I can see the argument.
But I’m servicing that argument, Kevin has been making some basic Econ 101 errors recently, and I just don’t understand why. He’s usually the one demanding that others stay intellectually honest - but I can’t imagine he doesn’t know this stuff.
The Federal Reserve began raising its interest rate target in March, after having let the world know it was going to do this back in December. And they also were clear that there would likely be a series of increases throughout the rest of 2022. I agree the price of lumber isn't simply a matter of Fed action, but I think they were affecting markets by March. The Ukraine war has made it harder to slay inflation generally, I think.
Completely wrong. Since July there has been no inflation. Take off March-June effect makes inflation easier to get rid of. I mean are You that stupid????
The dumbest thing about mainstream monetary policy is thinking that lowering interest rates stimulates private investment, but raising rates doesn’t stifle it, when the price increases we are experiencing are almost entirely due to supply issues - which need investment to be fixed.
Raising rates builds leverage in the future. Investment indeed happens with higher rates.
We need to break up monopolies and oligopolies, because that's where much of the price increases are coming from. It's gouging and wealth extraction, pure and simple.
They're not quite back to pre-pandemic levels. They're still about 20% higher. But yeah, the prices were coming down long before the rates were going up.
Metal studs are still 2x higher than where they used to be, pre-pandemic. Perhaps this is the split between slowdown of single-family/duplex residential construction and multifamily and commercial construction.