Markets rise and fall on consumer and seller confidence. Just 4 months ago, consumer confidence was in the tank due to the fear and unknown of COVID-19. Producers and sellers prepared for the worst and assumed that demand would dry up for construction materials. Some areas like Boston, Nantucket, and Martha’s Vineyard were shut down to construction. States, like New York, were shut down altogether in some areas and limited to 1 worker per site for the rest of the state. Our distributor friends in New York reported their revenues reduced by 70% almost overnight. Mills and factories across the country and the world, remembering the 2008 Recession, slashed production and furloughed workforces quickly, in the spirit of not following mistakes they may have made in reacting slowly to 2008.
One big difference...2020 is nothing like 2008. The economy in early 2020 was quite healthy. There was none of the crazy over lending, wild inflation, and toxic investment of the 2008 Recession. Business was good in Q1 2020 and there was no reason for it not to be, unlike 2008 when it was simply a matter of when the other shoe would drop. 2008 took a while to develop while 2020 happened over a matter of weeks and did so because of the outside influence of the Pandemic, not because of underlying financial practices.
We all know the rest of the 2020 story. A lot of people started working from home and were no longer able to travel or take vacations. They started spending on home improvement and that put pressure on the supply of building materials, starting with items like Pressure Treated lumber, as consumers thought about outdoor living as a way to make staying at home more enjoyable. From toilet paper to Tiki Torches, items have been hoarded, rationed, and their prices have been forced to historic lofty levels. Just look on the Internet for Lysol. A 19 oz Lysol spray can now sells for an average of $25 including shipping, if you can even find it. Amazing that people will pay that...but they will only pay it for a short time. Market sensibility always returns and prices settle out. It is important to remember that markets aren’t rational, they are far more emotional. The lumber markets are highly emotional right now, not necessarily at all rational.
Two thing we know: 1) We are all paying more for a lot of things in our lives than we’d like to, and 2) What goes up quickly, comes down quickly too. The question is when. The combination of buyers resisting because they know prices will be lower later, coupled with producers catching up and building inventories are what settle markets down. This market too will settle. It is very uncomfortable in the meantime for all of us. If panic paid off, we could all be rich. Hold on and know that no wild ride lasts long. We are in this together.