Lumber prices are falling back to around their pre-Covid levels

Lumber prices have fallen to their lowest level in more than two years, bringing two-fourths back to what they cost before the pandemic construction boom and pointing to a sharp slowdown in construction.

Lumber futures ended Monday at $410.80 per thousand board feet, down about a third from a year ago and more than 70% from their peak in March, when the Federal Reserve began raising interest rates to fight inflation.

Lumber prices crashed in the early days of the 2020 shutdown, but they exploded that summer as resident Americans remodeled en masse and suburban home sales soared. Two-to-four prices nearly tripled the pre-pandemic record as an early sign of inflation and broken supply chains that would hamper economic reopening.

But timber has led the way for raw materials since the central bank took aim at rising consumer prices and the overheated housing market. For two years, rising lumber costs lifted home prices. Now, homebuilders say cheaper wood allows them to provide incentives to buyers and reduce prices without squeezing their profit margins.

Lumber pricing service Random Lengths said its frame lumber composite index, which tracks cash sales in several species, fell last week to $529, down more than 60% from early March. Now that supply woes have eased and the highest mortgage rates in more than a decade have slowed home sales, buyers are no longer hoarding lumber for fear of running out.

“All the urgency of the last two years — ‘give me whatever you can’ — that’s pretty much over. Lumber mills aren’t afraid of the price going up,” said Michael Goodman, director of specialty products at wholesaler Sherwood Lumber Corp. which his family owns and operates. The Melville, N.Y., dealer sells framing lumber and plywood to building supply companies, truss manufacturers and shipping crates around the country. “The sexy lumber world is coming to an end, unfortunately,” he said.

A Massachusetts facility of Sherwood Lumber, which says the pressing demand for lumber over the past two years is over.

Lumber has led commodities since the Federal Reserve began raising interest rates to fight inflation.

The rate at which new U.S. homes are being built has fallen about 13% from April, when housing starts hit their highest level in more than a decade, according to the Census Bureau. An increase in new multi-family houses has offset a sharper decline in the construction of single-family houses, which typically use approximately three times as much timber per housing such as apartments.

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The issuance of building permits for residential construction has fallen steadily since March. The National Association of Home Builders said its measure of homebuilder confidence fell in September for a ninth straight month, to a level of pessimism not seen since 2020’s Covid-19 lockdown and the housing crash of 2008.

Mill managers, analysts and timber consultants gathered last week at a World Forestry Center conference in Portland, Ore., said the timber sector is bracing for recession, but not a severe one.

Paul Jannke of Forest Economic Advisors LLC said his firm forecasts that lumber consumption will fall by as much as 2.5% this year and up to 4.5% in 2023 as home construction stalls and demand for remodeling returns to normal after the pandemic renovation boom.

Despite the sharp drop in consumption, Mr. Jannke and others expect lumber prices to be much higher than during previous recessions — in the $400s a bushel. costs, particularly in British Columbia, where wildfires, wood-boring beetles and conservation efforts have reduced the supply of logs.

The lumber price that mills in western Canada need to break even is about $500 per thousand board feet, meaning they are likely to choke off production when cash prices for the spruce, pine and fir boards they saw fall below what Mr. Jannke said.

Mills there, as well as in the US Pacific Northwest and South, have already begun to cut back. Canfor corp.

, one of North America’s largest lumber producers, said it began a two-week curtailment Monday at most of its facilities in British Columbia. Work will resume with reduced operating plans aimed at trimming the Vancouver company’s production capacity by about 200 million board feet, or about 15% of last year’s fourth-quarter output.

The pressure on timber prices has decreased as the supply problems have subsided and rising mortgage interest rates have slowed home sales.

The consolidation of North America’s sawmills by a few large firms, such as Canfor and West Fraser Timber co.

has accelerated the rate at which production is being throttled in response to falling prices and should lift prices, said Håkan Ekström of Wood Resources International LLC.

“The markets are a little more controlled with fewer mill owners,” he said. “When there were multiple owners, everyone was waiting for someone else to slow down.”

Retailers such as Sherwood’s Mr. Goodman says the quick taper triggers are reason to fill wood. “There’s upside risk in waiting and really no downside to buying right now, that’s what we’re telling our clients,” he said.

Write to Ryan Dezember at ryan.dezember@wsj.com

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