Lumber Prices: The Oil of Home Improvement Projects

Many people have been following the highs and lows of the stock market with the doom and gloom of possibly delayed retirement. Others follow the running CNN tally of the Dow Jones Industrial Average with a type of rubbernecking fascination, even as experts tell us that the credit markets are the bigger concern for the future of our economic health. As the impending economic recession drives down prices across the market, opportunity lies in more places than just the gas pump.

Lumber Prices, Oil Prices, and the Economy
Although lumber mills are getting crucified by steeply declining lumber prices, homeowners and carpenters are licking their chops at some real bargains. According to Random Lengths, from August 29th to October 24th, framing lumber dropped 21 percent. The Chicago Mercantile Exchange, where lumber is traded like stocks, saw framing lumber futures drop off even more precipitously from $254.8 to $178.8 per 1,000 board feet. That's a loss of 30 percent. During the same period, light, sweet crude oil fell from $115.46 to $64.15 or a loss of 44 percent, one of the steepest declines in U.S. history.

Now, it should be noted that this type of decline from lumber prices is far from across the board. Specifically, the Southern Pine Composite (SPC) —an index for the weighted average price of 35 different lumber items including dimension, boards, decking, and timbers—has held its own against other lumber prices.

Lumber Keeps the Home Improvement Engine Running
Without oil, people can't get to work, they can't shop, and the economy stops functioning. So it is with lumber and the home improvement and home building markets. Without lumber, houses can't be built, floors aren't as extravagant, decks are made from cheap synthetics, and many people put off their fence building projects. Wood siding and wood cabinets go out the window, window frames must be made from vinyl or aluminum, outbuildings such as gazebos look artificial. There is no building material that is even in the same category as the timeless look of authentic wood. Moreover, vinyl, laminate, composites, and other synthetic materials are exactly like the electric and hydrogen-powered cars of the home improvement industry: They hold immense promise, but they haven't delivered yet.

What Does this Mean for Homeowners?
Are you one of the many thousands of homeowners wondering what they should do with their money to keep it safe? Sure, you could take your money and buy U.S. Treasury securities, but odd as it sounds, now might just be the absolute perfect time to invest in your home and complete a home improvement. Take, for example, new hardwood flooring, a deck addition, privacy fencing, or any other home improvement that requires a good deal of lumber. The best method, regardless of lumber pricing trends, is to go to your nearest lumberyard every week to look for the best bargains. Plus, as more and more people continue to hoard their cash, flooring, deck, fencing, and other home improvement contractors have fewer and fewer projects on their docket, increasing competition among the contractors, and driving down project estimates.

Hidden Gems of the Poor Economy
Economists, TV pundits, and American families are looking for a silver lining to these tough economic times. Many of the experts are citing low gas prices as a type of indirect economic stimulus, putting money back into the pocket of U.S. consumers. People mistakenly believe that putting any extra cash toward a home renovation is a poor investment, since home values have tanked. This might be true if you have to put your home on the market in the next few months, but if you're able to hang on to your property—whether it's your primary residence or a rental property—the housing market will inevitably rebound. Meanwhile, the cost of home improvement will follow suit, meaning you might have a relatively short window to complete one of these bargain lumber-oriented projects.