Thomas Northcut/Getty Images
Lumber fell 20% over a four-day period ending on Monday, hitting its lowest level of 2022.The essential building commodity has been rocked by soaring mortgage rates and a slowing housing market.The average 30-year fixed mortgage rate inched closer to 7%, according to Mortgage News Daily.
Surging mortgage rates and a slow down in the housing market continue to take a toll on lumber prices, with the essential building commodity hitting a new 2022 low on Monday.
Lumber futures hit a low of $413 per thousand board feet on Monday, representing a year-to-date decline of 64%, and a 76% decline from its record high reached in May 2021. The commodity tumbled 20% during a four-day losing streak, which ended on Monday. On Tuesday, lumber prices rebounded 8% to $442 per thousand board feet.
The ongoing decline in lumber prices has been mostly driven by a slowdown in the housing market, which has been severely impacted by the swift and aggressive interest rate hikes by the Federal Reserve.
Just one week after the Fed raised interest rates by another 75 basis points at its FOMC meeting, the average 30-year fixed mortgage rate inched 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%.
The surge in mortgage rates over the past year has led to a continued drop in existing and new home sales, as well as a cool-down in the median home sales price.
According to the S&P CoreLogic Case-Shiller index, the growth in home prices slowed by a record amount in July, representing a four-month deceleration. The Case-Shiller index jumped 15.8% in July, representing a more than two percentage point drop from June’s reading of 18%.
“Although U.S. housing prices remain substantially above their year-ago levels, July’s report reflects a forceful deceleration,” S&P DJI managing director Craig Lazzara said.
While home prices are still higher than they were a year ago, July’s sharp slowdown suggests that there be more pain ahead for the housing market, which could put further pressure on lumber prices.
Homebuilders like Lennar and KB Home are already walking away from residential land deals due to the soured outlook in the housing market. In their most recent quarter, Lennar said it canceled contracts to purchase 10,000 lots, while KB Homes dropped 8,800 lots.
“The lumber market continues to be in a state of overall malaise as buyers anticipate lower overall demand going forward. Many yards are trying to pare their inventories to minimum levels and have really no fear of price upside,” Sherwood Lumber’s director of risk management Steve Loebner told Insider last week.
While lumber prices could see a meaningful bounce following their steep year-long decline, it will likely take a significant rebound in home building activity on the back of lower mortgage rates. But until that happens, it’s not difficult to see lumber prices trading in the pre-pandemic range of $200-$600.