The higher-rate environment appears to be putting pressure on lumber futures
Lumber prices, which shot up to a record high last spring, are now crashing down as rising interest rates put an end to the pandemic-driven housing boom.
The Wall Street Journal reported that lumber futures for July delivery plunged 52% from a high in early March to $695.10 per thousand board feet on Friday. On-the-spot wood prices have dropped sharply as well, according to pricing service Random Lengths, falling roughly 12% last week to end at $794. That is compared to $1,334 in March, just before the FOMC issued its first interest rate hike since 2018.
Random Lengths explained that buyers have slowed orders and are not hoarding lumber like they used to last year – pushing prices down. “Triple-digit discounts became the rule rather than the exception,” the company said in its weekly price bulletin.
“Buyers don’t have the same mentality of having to go out and buy 10 when they only need five,” Ash Boeckholt, co-founder and chief revenue officer at online wood-products marketplace MaterialsXchange, told the Wall Street Journal.
The combination of elevated rates, supply shortage, and extremely high home prices have started to take their toll on the housing market.
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The 30-year fixed-rate mortgage averaged 5.1% last week, well above the 3.11% level at the end of 2021. This has dampened new and pending home sales, which were down 16.6% and 3.9% in April, respectively. Housing starts also slowed to an annualized pace of 1.72 million, data from the Census Bureau showed.
According to the National Association of Home Builders, extremely volatile lumber prices during the past year have caused the average price of a new single-family home to increase by more than $18,600.
