- Timber prices fell to new 2022 lows on Tuesday as rising interest rates and inflation cool the housing market.
- Mortgage rates for the popular 30-year fixed rate remain above 5%, which has led to a slowdown in mortgage applications.
- Rising inflation hurt the home improvement market, weakening demand for lumber.
Lumber prices fell more than 6% to $829 per 1,000 board feet on Tuesday, marking a new low for the commodity in 2022, as rising mortgage rates and rising prices undermine the market housing.
The essential construction product saw a slowdown in demand as the popular 30-year fixed mortgage rate rose above the 5% level. The average 30-year fixed mortgage rate was 5.14% on Tuesday, up about 29 basis points from a week ago.
This spike in mortgage rates has made buying a home less affordable and led to a precipitous 40% drop in year-over-year mortgage applications earlier this month as consumers try to expect lower rates.
Lower home buying activity due to rising mortgage rates, combined with a slowdown in DIY home renovations, ultimately led to a slowdown in demand for the essential building product.
“Buyers remained cautious given rising lumber prices, inflation concerns and rising mortgage rates,” Bank of America summed up in a note earlier this month, adding that “ OSB prices were also lower again, with buyers seeking discounts as demand for do-it-yourselfers were said to have slowed.”
Meanwhile, improvements in railway availability capacity, particularly in western regions, helped unravel a supply chain bottleneck that the lumber market was facing. faced late last year, further easing supply pressures and helping to lower prices, BofA observed.
Lumber prices are down 39% from their March high of $1,357 per thousand board feet, and 52% from their May 2021 high of $1,733 per thousand board feet -plank.
But that doesn’t mean the commodity can’t see a strong recovery and higher prices going forward given the continued shortage of new homes available for sale. According to data from Statista, the number of new homes built from 2010 to 2019 was less than half of those built from 2000 to 2009. And the number doesn’t look encouraging for the start of the current decade.
This shortage of new homes built comes as millennials shift from student loan debt to mortgage debt, which is expected to drive demand for new homes and could lead to a multi-year boom in new home construction, which would in turn stimulate the demand for wood. and lead to a continuous increase in commodity prices.
But for now, lower timber prices should help calm inflation and give
more room to maneuver as it begins to raise interest rates and shrink its balance sheet.