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A history lesson in lumber/panel prices

Lumber and panel markets are at a crossroads when it comes to pricing. The housing starts figure for March went above 1 million as a seasonally adjusted annual rate — the first time since June 2008 — indicating the recovery in home construction continues. As this recovery continues, prices for lumber and panels have reflected this growth, rising to levels not seen in many years.

If the housing recovery lasts, will lumber and panel prices also continue to climb? Perhaps we can draw some conclusions from OSB prices during the housing boom of 2003-2006. During this period, new-home construction was going at a feverish pace. So much so that it seemed every other driveway had a new dually pickup with a contractor’s name on the door parked in it. As the need for building materials escalated, prices rose to record levels. In April 2004, the price of 7/16-in. OSB in the Southeast reached an all time high of $528. Housing starts were 1.95 million that month. This was the high point, and still is, for OSB prices in any region.

Although housing starts continued to climb to 2.3 million during the next year, OSB prices peaked at just above $400. Why the difference? During this period, OSB producers ramped up production to a point that supply surpassed even the lofty demand of more than 2 million housing starts.

Today we are seeing housing starts just breaking 1 million, and 7/16-in. OSB prices are at or above $400. Where will the market go from here? Will home construction continue to grow toward more traditional levels and, if so, will prices for building materials follow suit? Will we see new record price levels for OSB in the near future, or will there be a repeat of 2005?

Once again, the answer lies in the hands of producers. Their destiny is theirs to control.

 


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