Lumber prices have skyrocketed 140% over the last year, but the economy might not be able to handle further increases in 2021, a chief market technician says

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Lumber prices have skyrocketed 140% over the last year, but the economy might not be able to handle further increases in 2021, a chief market technician says
Justin Sullivan/Getty Images)
  • Lumber prices have soared nearly 140% over the last year as the best-performing commodity.
  • Piper Sandler chief market technician Craig Johnson told Insider the charts show prices could gain 35% in the next year.
  • But he added that the economy may "stub its toe" as commodity prices outpace the rise in other aspects of the market, like wages.
  • Watch Lumber Futures trade live here.

Lumber prices have been on a tear in the last year but the broader economy may not be able to handle the further gains it has up ahead, according to Piper Sandler chief market technician Craig Johnson.

Lumber has outperformed every other commodity by a magnitude in the last year. It has soared nearly 140%; far ahead of copper's second-place 60% annual gain. On February 22, lumber futures traded at a record high above $1,000 per 1,000 board feet but have since pulled back slightly to around $970.

The size of the consolidation in lumber prices indicates that a 35% move higher in prices is achievable in the next 12-18 months, said Johnson.

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Soaring lumber prices are a sign of the pandemic-induced housing boom, fueled by record low mortgage rates and a mass exodus to the suburbs. But the broader economy may not be able to handle any higher prices, Johnson told Insider.

"It's a great sign that the economy's recovering, it's just covering so quickly. There's only so much product out there at this point in time," he explained.

If prices of Lumber and other commodities continue to rise so quickly, the economy might "stub its toe,"Johnson added. Prices will move higher, driven by demand, while supply will continue to shrink.

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Meanwhile other areas of the economy, like worker wage increases, haven't been keeping pace.

"We're getting a dramatic spike up in all the commodities at this point in time. And right now wage increases aren't coming nearly at the same pace as what all these basic inputs in the economy are going up at," Johnson said. "That's why I think there's a greater attention to all the commodities across the board right now, because interest rates are going up and all these inflationary commodities are all advancing in price."

Read more: UBS: Buy these 14 back-to-normal stocks now before a 'sharp acceleration' in consumer spending in Q2 as vaccinations pick up

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