As we have all been very aware, lumber prices have been on a tare higher since bottoming out in April 2020. This has been impacting everything from new construction, to rehab projects and even quoted as being justification for some of the crazy bidding wars for existing homes. I am happy to report, per the chart below, near term lumber futures (1 month out) have finally hit pre-covid levels and we should really start to be putting pressure on our suppliers be it HomeDepot, Lowes, BMC, or any other local supplier you source from.

I chose to use HomeDepot because this is probably the most widely used supplier and holds a very large market share nationally. One caveat in the below analysis being that if your supplier is too small to procure a full futures contract they may be buying from a wholesaler so pricing will be higher. A full futures contract is 110k ft board which equates to ~$14k 8ft 2x4's. Regardless, it will take pressure to get them to move away as it has become very lucrative business as pricing expanded dramatically over the last year. There will also be many small supplier that will get stuck with expensive inventory they cannot recoup investments on especially if they run LIFO vs. FIFO accounting and are unwilling to quickly reduce pricing to match moves in the broader market. As we learned in accounting, the tradeoffs are just that, FIFO is great for deflationary periods but terrible for inflationary periods. FASB allows for a choice of either but it is very difficult for public companies to change from FIFO to LIFO or LIFO to FIFO. Doing your research on your particular supplier to know their accounting practices will help to understand where they will and won't be flexible.

Based on these prices, in one moth you can expect 1,000 ft board to cost your suppliers $536 which equates to a wholesale price for an 8 ft 2x4 costing them $4.28 each. Using a reasonable market observed margin of 20% (some are lower/higher), you can expect to see retail price of $5.13 each. For comparison, HomeDepot in my area is currently selling an 8 ft 2x4 for $6.48. This means we can expect costs for lumber materials across the board (no pun intended) to drop by about 20% in the next few months, maybe slightly longer depending on the inventory turnover ratio of your particular supplier. Currently HomeDepot shows to have a 65 day inventory turnover ratio.

Austin, Texas

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