Lumber prices are falling—fast.
On Tuesday, the price per thousand board feet fell $114 to $1,210, according to industry trade publication Fastmarkets Random Lengths. This comes after its record $122 decline last week. In all, the "cash" price of lumber is down 20%—the threshold in the securities world for a bear market—since the $1,515 all-time high set on May 28
What's driving the dip? Homebuilders and DIYers alike are finally balking at the exorbitant price of lumber. Indeed, new home construction in May is down 8.8% from the 14-year high set in March. And home-improvement sales are down 8.1% in May compared with the all-time peak set in March. Those dips coincided with the historic surge in lumber prices that occurred this spring. In addition, on the supply side, sawmills and loggers are incentivized by record prices to churn out more lumber: In April, U.S. wood production hit its own 13-year high. Rising supply and weakening demand is a perfect recipe for a price correction.
"What we’re seeing right now is that of all the factors that contributed to the record run, those trends have eased or turned over and are incrementally contributing to the drops," Shawn Church, the editor of Fastmarkets Random Lengths, tells Fortune. "We certainly have heard that projects have been put on hold because of tight supplies and record wood products prices." The pullback in DIY—just after setting an all-time record in March—is catching some big-box retailers off guard.
"Home centers across the country forecasted greater demand from the DIY sector this year based on the frenzied pace we saw over the past 12 months, and as consumers move on to lockdown-free activity such as travel and leisure, we've seen a drawdown in that home center takeaway loosen up supply in the marketplace, which has contributed to the easing of pricing overall," Nils Martinsson, a commodity lumber trader at Sherwood Lumber
As the cash price of lumber (what sawmills charge distributors and wholesalers) continues its slide, it should, industry insiders tell Fortune, begin to be reflected in the aisles of big boxes like Home Depot and Lowe’s. So DIYers along with homebuilders are due for some price relief.
And even more, drops could be looming. Preceding this correction on the wholesale side, lumber futures peaked on May 10 at over $1,700 for July delivery contracts. As of Tuesday's close, July contracts trade at $1,010, while September contracts are $907. That suggests traders believe the wholesale and retail price will continue to descend.
While the lumber cash price is falling, it still has a long way to go: Prices are up 239% from last spring. Prior to this lumber crunch, prices fluctuated between $350 to $500 per thousand board feet. Simply put: Even with this price relief, your deck or home remodel is still going to cost a lot more than if you did it pre-pandemic.
"We've depleted a lot of inventory at the distribution and retail level of market in a short period of time. So even though buyers sense the market turning in their favor, they cannot throttle buying as much as they'd like to as demand from builders/contractors is still there," Dustin Jalbert, a senior economist at Fastmarkets RISI, where he covers the lumber market, tells Fortune. "That inventory correction is going to take time to sort out: Mills are not only producing to meet existing demand from construction and manufacturing but also to fill that inventory hole that we dug in 2020 as demand outpaced production."
One challenge? Even though homebuilding and DIY are slowing a bit, they're still red hot. New home construction in May is up 50% from May 2020—amid the spring 2020 shutdowns—and up 21% from May 2019.
As Fortune has previously explained, this historic lumber shortage was spurred by a perfect storm of factors set off during the pandemic. When COVID-19 broke out in spring 2020, sawmills cut production and unloaded inventory in fear of a looming housing crash. The crash didn't happen—instead, the opposite occurred. Americans rushed to Home Depot and Lowe’s to buy up materials for do-it-yourself projects, while recession-induced interest rates helped spur a housing boom. That boom, which was exacerbated by a large cohort of millennials starting to hit their peak homebuying years, dried up housing inventory and sent buyers in search of new construction. Home improvements and construction require a lot of lumber, and mills couldn't keep up.