The price of lumber, which reached a record high in late August of $20 per 1,000 board feet, dropped 13.5 per cent during the first week of October, though demand, measured in housing starts, remained steady.

Was the drop precipitated by mid-September announcements of investigations into lumber prices by the Senate banking Committee and the Department of Housing and Urban Development? Yes, declared Robert Arquilla, president of the National Association of Home Builders.

"Hogwash," replied Thomas M. Orth, president of the National Forest Products Association. "Prices dropped more this month than normal because they had gone up more than usual," he said.

The conflicting testimony was heard yesterday as the committee sought the reasons why products used in new home construction have soared more than 50 per cent over the past two years.

Among the reasons suggested by some (and denied by others) were scarcities, high lumber industry profits, concentration in the industry, conflict between government housing and environmental goals, and mismanagement of the U. S. Forest Service.

According to Arquilla, using a narrower index than the Wholesale Price Index, the increase in lumber and wood products prices over the past two years is closer to 90 per cent, a 20 per cent rise in August alone. The average cost of wood products in a three-bedroom house costing $50,000 is $7,500. An increase in lumber prices of 20 per cent would add an extra $1,500 to the sale price.

Orth observed that more lumber and plywood are being used today in each unit. In 1972, when a record 2.4 million housing starts were made, 55 per cent of those were single-family homes. These require three times the amount of wood as an apartment.In 1977 the single family home percentage has risen to 73.Saying the problem lay with government rather than the insustry, Orth lashed out at the committee which, he noted, has held hearings three times in eight years on lumber prices but has done nothing.

The Council on Wage and Price Stability, responding to a HUD, request for inquiry, outlined a somber picture of future lumber trends. Given the post-war baby boom's need for houses and the declining inventory of timber of lands, director Barry P. Bosworth said he sees a threat of continuing high prices into the mid 1980s.

Bosworth said lumber producers have only limited ability to resist the wide fluctuations that characterize the building industry. Theseare caused by Federal Reserve actions affecting the cost of credit. Because hedging in the futures market is impractical and stockpiling inventory too expensive, they will never succeed in adjusting supply to demand, he added.

The long-term answer, Bosworth declared, lies in reducing the amount of lumber needed and increasing supplies from federally held timber lands. These have reserves amounting to about half of the total inventory of softwood timber.

Current law prevents loggers from cutting down trees on federal lands faster than they can be replaced. A lack of manpower has slowed reforestation efforts recently. Bosworth suggested serious consideration should be given to changing the law to permit increased harvests at the present time. Any such move is bound to run into opposition from environmentalists.