Lumber prices have rebounded sharply over the last 3 days after plummeting more than 50% from record highs

• The price of lumber has risen 11% to $820.40 per thousand board feet from its recent low on June 30.
• The red-hot commodity has seen a rapid decline since its May 7 peak.
• Renewed demand could be driving lumber prices up once again, an analyst said.

Lumber prices have rebounded sharply in the past three days after plummeting more than 50% from record highs.

The red-hot commodity has been on a rapid decline since its May 7 peak of $1,670 per thousand board feet. On the last trading day of June, prices closed 45% lower, suffering its biggest monthly drop since 1978.

But as of July 7, the price of lumber has risen 11% to $820.40 per thousand board feet from its June 30 low.

A possible reason could be another surge in demand as the US economy makes its way to a full recovery from a pandemic recession, according to Jay Denton, chief analyst for labor analytics firm ThinkWhy.

"A growing focus on returning to workplaces, building infrastructure, and leisure activities could spur investments," he said in a note.

At the start of the year, residential construction spending, a key driver in the industry's growth, has ramped up as people stuck at home due to the pandemic embarked on home improvement projects. When spending slowed, many were expecting lumber prices to fall in step with decreased demand.

But, as Denton said, commercial construction may be the new driver. He added that a large reason for the drop was also a reversal of inflation from earlier in the year.

Despite recent fluctuations, the price of lumber remains elevated. Exactly a year ago, lumber prices closed at $455.30 per thousand board feet - almost half of today's price.

"Most investors are aware of the spike in certain materials like lumber, copper, and semiconductors," Michael Wilson, equity strategist at Morgan Stanley, said in a statement. "They believe materials prices will eventually simmer down as supply adjusts, the normal pattern for commodity markets historically."

While Wilson said he is "not quite as confident in that view," he believes some commodity prices will subside where "supply can adjust in a timely fashion."

Earlier in 2021, lumber prices surged, triggered by a confluence of factors including a pandemic, a soaring housing market, and millennials reaching home-buying age, as well as lumber shortage that had preceded the onset of COVID-19.