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. Newsday LLC / Contributor/Getty Images
  • 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.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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 $US1,700 ($AU2,296) per thousand board feet amid strong demand for new houses and a home-improvement craze. But they have since tumbled around 65% to $US607 ($AU820) as of Tuesday, 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 $US540 ($AU729) per thousand board feet in the middle of July to above $US600 ($AU810) 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.