Apparently, lumber can go down, too. Just for some quick context, I ranked percentage moves in lumber futures prices every week from 1972. Fully half of the top 50 largest weekly moves since 1972 have been in 2020 and 2021. The next biggest year was 2009 (you may remember that a thing or two happened in housing in 2009), with 6 appearances in the top 50, versus 16 in 2020 and 9 already in 2021, a year not even halfway over.
The past 50 years have included stagflation, double-digit interest rates, and multiple boom and bust cycles in both the global commodity supply chain and the US housing market. Somehow, none of that can hold a candle to the uncertainty facing lumber supply and demand right now.
Certainly, the pandemic’s supply chain disruption and the Millennial generation’s collective sprint for the same entrance door into homeownership is a perfect storm for lumber. My characterization of the Bitcoin v. Lumber graph above as a heinous chart crime notwithstanding, there still feels like there is something else at play here.
Because lumber futures are exchange traded, and the world is flush with liquidity, speculators can immediately buy and sell based on the smallest updates to their price forecasts over time. The transaction costs are virtually non-existent, so any change in perception is immediately incorporated into price. Traded markets like lumber have become the hare from Aesop’s fable, sprinting forward, stopping, reversing, and dancing their way to the goal line. Put differently, traded commodities and assets move at market speed.
The housing market, by contrast, is the ultimate tortoise. Transaction costs for its primary participants (owner-occupants) are outrageously high. Even if a homeowner had perfect information that the town next door would realize 20% outperformance over their own, they would be highly unlikely to uproot their family to close the arbitrage. It is much easier to avoid reacting to every news headline when there is literally nothing you can do about it. The housing market moves at human speed.
That’s why housing price charts look like this: