Lumber prices could climb another 12% this year after hitting a record high in April, Piper Sandler strategist says
- Piper Sandler's Craig Johnson says lumber prices are headed to $1300 per thousand board feet.
- The price target represents a 12% jump from lumber's Tuesday closing price.
- Housing demand, lagging supply, and the upcoming hurricane season are all set to drive the price of lumber higher.
Piper Sandler's Craig W. Johnson, CFA, CMT said he believes Lumber prices could "very easily" move above $1,300 per thousand board feet this year even after notching a record high in April.
That figure represents a 12% increase from Tuesday's closing price of $1,154 per thousand board feet. Lumber prices have soared more than 250% in the past year alone.
In an interview with Insider, Johnson, a technical research market strategist, said that lumber prices have broken out of a "huge consolidation" that occurred from 2018 through 2020 and are set to soar amid the economic reopening.
Based on technical analysis, Johnson sees lumber prices continuing to rise to at least $1,300 over the next six to nine months.
The strategist noted that there is an enormous demand for housing and renovations that's pushing lumber prices higher.
Johnson said that with interest rates as low as they are, there's an overall sense that this is the lowest mortgage rate many people are ever going to get.
As a result of these low mortgage rates, a new work-from-home trend, and young people moving out of cities, home buyers are lapping up properties at historic rates, and that's putting pressure on lumber supply.
Johnson also said that timber companies are struggling to catch up with demand after shutting down some of their operations during the pandemic.
The technical research strategist added that, based on what he's been reading, timber companies won't be putting more sawmills in place to meet demand either because they lack the economic incentive to add capacity.
Creating more sawmills is a capital-intensive process that requires producers to get permits, and that can't be done quickly.
Johnson also said the upcoming hurricane season could exacerbate the lumber price issue by adding to demand.
When asked what could stall rising lumber prices, Johnson said that only the slowing of economic activity would cause prices to fall, but noted that right now he believes that's unlikely as we are in the "great wide open" for economic growth post-pandemic.
Lumber traded up 2.7%, at roughly $1,212, as of 12:04 p.m. ET on Wednesday.