Lumber prices have surged as much as 45% from their June low, but waning demand for new construction has lowered those gains to less than 25% in July, Insider reports. Sky-high mortgage rates are causing a slowdown in residential construction, and because home building demand is the main driver of lumber prices, the lumber industry could be in for big changes ahead.
Meanwhile, supply is easing as mills in British Columbia recover from devastating flooding late last year. Falling materials prices could signal a slowdown in inflation and alleviate financial burdens for builders across the U.S. Lumber prices are down 44% year-to-date and are 63% below their record May 2021 high, a shocking decline after seemingly endless price hikes throughout the pandemic.
Gains from the June low of $517 per thousand board feet were sparked by temporary relief in sky-high mortgage rates, which fell about 50 basis points in just a couple weeks, according to data from Freddie Mac. But most of those gains have evaporated as the key 30-year fixed mortgage rate still remains elevated at multi-year highs.
The swift doubling in mortgage rates this year, from about 3.0% in January to close to 6% today, led to a quick slowdown in homebuilding activity as monthly costs became unaffordable for homebuyers. That's a problem for the lumber industry, as homebuilding demand is the main driver of lumber prices.