- Lumber prices have plummeted 30% over the past two weeks as the housing market cools down.
- A surge in mortgage rates contributed to a decline in pending home sales last month, according to the National Association of Realtors.
- Lumber is still facing supply chain disruptions after storms knocked out crucial railways in British Columbia late last year.
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Lumber prices have crashed 30% over the past two weeks as rising mortgage rates help cool down the US housing market.
Lumber traded limit down multiple times last week, and was down about 5% on Tuesday. The essential building material hit a high of $1,338 per thousand board feet on January 14 before trading to a low of $934 on Tuesday.
The average 30-year fixed mortgage rate has been surging recently and jumped 50 basis points to 3.55% in late January ahead of anticipated interest rate hikes from the
later this year.
And even before January’s spike, the housing market was already feeling the effects of rising mortgage rates. US pending home sales fell 3.8% month-over-month in December, and were down 6.9% year-over-year, according to the National Association of Realtors..
“The market will likely endure a minor reduction in sales as mortgage rates continue to edge higher,” NAR chief economist Lawrence Yun said.
A prolonged cooldown in the housing market could help lessen demand for lumber and thus result in lower prices, at least temporarily. There still remains a shortage of new homes for sale and the millennial generation is just starting to graduate from student loan debt to mortgage debt, suggesting demand for homes will remain strong.
But any temporary drop in demand for lumber would be a big relief for its supply chain, which still remains disrupted due to a major storm in British Columbia late last year that washed out rail lines that lumber mills depend on, among other factors.
“It stopped shipments by a good 20%, and 100% in certain places,” RCM Alternatives lumber analyst Brian Leonard said. Some think the correction in lumber prices could continue as weather and railway issues improve.
“What is driving this correction is that most believe that the rail and weather issues are improving and will improve as we get into the next 2-4 months. If this is accurate we should continue to see some pressure to the downside,” Joshua Goodman of Sherwood Lumber told Insider.
“However, do not be fooled as record demand continues to remain strong and will be for the balance of 2022,” Goodman added.
in lumber prices is nothing new for the lumber mills that process it and the home builders that buy it after last year’s price swings.
In 2021, lumber prices soared as much as 142% to a record high of $1,733 per thousand board feet due to strong demand and various supply chain disruptions. Lumber prices eventually cooled off considerably, falling as much as 75% to just $452 before rallying 106% to current levels.