Lumber prices have experienced a three-day rally, increasing by 10% and reaching $506 per thousand board feet. This comes as a surprise amid ongoing challenges in the housing market, particularly a surge in mortgage rates. The average 30-year fixed mortgage rate has climbed to its highest level since 2008, reaching 5.89%. The rise in rates has led to a decline in housing market demand, which ultimately affects the demand for lumber.
Home builders across the country have reported lower buying activity and cancellations, highlighting the strong correlation between mortgage rates and home sales. If interest rates reach 6.5%, the housing market could face significant challenges. However, there is hope for a potential turnaround if the Federal Reserve limits further rate hikes at its upcoming FOMC meeting. This could spur a resurgence in the housing market and benefit lumber prices.
On the other hand, if the housing market continues to struggle, lumber prices may return to their pre-pandemic trading range of $200 to $600 per thousand board feet. A slowing housing market does have one positive effect - it allows input supplies, including lumber, to catch up to demand as supply chain disruptions are resolved. This provides some relief for labor and supply issues in the industry.
In conclusion, despite headwinds in the housing market, lumber prices have seen a recent increase. The rise in mortgage rates has impacted housing market demand, but there is potential for improvement if the Federal Reserve eases on rate hikes. Alternatively, if the housing market remains sluggish, lumber prices may stabilize at lower levels.
