Lumber prices have plunged 24% as this year's home builder season fails to meet expectations

"Last week's housing report provided confirmation for many that demand is somewhat worse that most realized," Sherwood Lumber told Business Insider.

• Lumber prices are down 24% from their mid-March peak amid subdued home-building activity.
• US housing starts and new building permits are on the decline this year, each falling 4% and 6% in May.
• The combination of oversupply and falling demand for lumber are driving prices down, say industry experts.

Lumber prices have plunged this year as the peak home-building season falls flat amid subdued demand.

The essential homebuilding commodity has seen futures pricing plunge 24% from its mid-March peak to $473 per 1,000 board feet.

The sharp decline is an about-face from the start of the year, when lumber brokers were excited about 2024 prospects for the commodity due to a US housing market that is sorely in need of new homes.

"We entered 2024 with optimism for the year to come with a housing deficit that needs to be filled, commodity lumber and structural panel prices reset to a pre-covid range, and a Fed that stopped raising interest rates with hopes of many cuts to come," Sherwood Lumber senior vice president Josh Goodman told Business Insider.

That optimism drove a build-up in lumber inventory at the start of the year, and that inventory is still getting worked through as the home building season appears to not be as strong as it was expected to be, according to Goodman.

US housing starts and new building permits have been steadily falling this year, declining 4% and 6% in May, respectively.

Home builders have been slowing down new construction projects because sales of new homes have also been steadily declining this year as consumers grapple with lingering affordability issues driven by high mortgage rates and stubbornly high home prices.

Putting added pressure on lumber prices is that the commodity is experiencing a period of oversupply.

"What many did not recognize is that new demand has been declining faster than the sawmill production. Commodity Forest Product markets continue to be oversupplied," Sherwood Lumber COO Kyle Little told Business Insider.

And falling demand combined with rising supply can be a powerful dynamic that puts downward pressure on prices.

"Last week's housing report provided confirmation for many that demand is somewhat worse that most realized. Current supply needs to be consumed and the market is indicating that it will….albeit at a lower price," Little said.