Lumber prices have turned negative for the year after red-hot rally as the home improvement boom cools

• Lumber prices have turned negative for the year as demand has cooled after a red-hot rally.
• The futures price fell 5.6% on Monday, taking it 0.6% below where it started the year.
• Home improvement demand has dropped, while suppliers have raised production.

Lumber prices have dropped into negative territory for the year after two months of dramatic falls, as the home improvement boom cools and producers increase supply to meet demand.

On Monday lumber futures for September delivery fell 5.6% to $712.90 per thousand board feet, Bloomberg data showed. The fall took prices 0.6% below where they started the year.

Lumber soared in the first few months of 2021 as Americans stuck at home due to the pandemic renovated their houses and a booming property market added to demand. Prices peaked at more than $1,730 per thousand board feet in May as suppliers struggled to keep up.

The rocketing price of lumber captured the attention of the market as a sign of the way the COVID-19 pandemic was throwing the economy out of whack.

But since the May peak, prices have plunged almost 60%. Analysts have said that the loosening of coronavirus restrictions has caused consumers to spend less on home improvements such as new yard decking and more on services like eating out and haircuts.

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Sky-high prices have also cooled demand in sectors like housing and caused producers to increase their supply.

The drop in lumber adds credence "to the age-old admonition that 'the best cure for higher prices is higher prices'", Oppenheimer Asset Management analysts said in a recent note.

Falling lumber prices have also helped calm investors' nerves about inflation. The governor of the Bank of England pointed to lumber as an example of why sharp price rises across the economy ought to fade, saying in June: "There are plenty of stories of supply-chain constraints on commodities and transport bottlenecks, much of which ought to be temporary."

Yet many experts think lumber prices are likely to remain higher than their historical average over the last three decades of around $200 to $400.

Stinson Dean, CEO and founder of Deacon Trading, which trades lumber, told Insider in June supply and demand are normalizing and reaching an equilibrium.

"My argument is the 'new normal' is going to be significantly higher than the 'old normal'," he said.