- Lumber fell 20% in a four-day period ending Monday, hitting a 2022 low.
- The essential construction asset was rattled by soaring mortgage rates and a slowing housing market.
- The average 30-year fixed mortgage rate has come closer to 7%, according to Mortgage News Daily.
Soaring mortgage rates and a slowing housing market continue to weigh on timber prices, with the essential construction product hitting a new low in 2022 on Monday.
Lumber futures hit a low of $413 per thousand board feet on Monday, down 64% year-to-date and down 76% from its record reached in May 2021. Product fell 20% in a four-day period. losing streak, which ended on Monday. On Tuesday, lumber prices rebounded 8% to $442 per thousand board feet.
The continued decline in lumber prices is primarily attributable to a slowdown in the housing market, which has been hit hard by the Federal Reserve’s rapid and aggressive interest rate hikes.
Just a week after the Fed raised interest rates an additional 75 basis points at its FOMC meeting, the average 30-year fixed mortgage rate has moved closer to 7%. According to the Mortgage News Daily Rate Index, the popular 30-year fixed rate hit 6.87%, a far cry from just a year ago, when the average rate was just over 3%.
Soaring mortgage rates over the past year have resulted in a continued decline in sales of existing and new homes, as well as a decline in the median selling price of homes.
According to the S&P CoreLogic Case-Shiller Index, home price growth slowed by a record amount in July, representing a four-month deceleration. The Case-Shiller index jumped 15.8% in July, down more than two percentage points from June’s reading of 18%.
“Although U.S. home prices remain well above their levels of a year ago, the July report reflects a sharp deceleration,” said Craig Lazzara, chief executive of S&P DJI.
With house prices still higher than they were a year ago, the sharp slowdown in July suggests that the housing market will be even more painful, which could put additional pressure on lumber prices.
Homebuilders like Lennar and KB Home are already moving away from residential land deals due to the deteriorating housing market outlook. In their last quarter, Lennar said they canceled contracts to purchase 10,000 lots, while KB Homes dropped 8,800 lots.
“The timber market continues to be in a general state of unease as buyers anticipate lower overall demand in the future. Many yards are trying to reduce their inventories to minimum levels and really have no fear of a price increase,” said Steve, director of risk management at Sherwood Lumber. Loebner told Insider last week.
While lumber prices could see a significant rebound from their steep one-year decline, it will likely take a significant rebound in homebuilding activity due to lower mortgage rates. But until that happens, it’s not hard to see lumber prices trading in the pre-pandemic $200-$600 range.