Lumber Prices Crash 30% as Mortgage Rates Start Going Up

Stack of 2x4's at a home improvement warehouse.
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The prospect of a cooling housing market tied to higher mortgage rates and ongoing supply-chain issues has sent the price of lumber tumbling from the lofty heights it hit last month.

Lumber prices have fallen 30% over the past two weeks, Business Insider reported, hitting a low of $934 per thousand board feet on Tuesday. That was down from $1,338 as recently as Jan. 14. The recent slump is the lumber industry’s longest since July, Bloomberg reported.

Part of the decline has been attributed to rising mortgage rates, which some industry experts say will lead to a slowdown in home sales. The average 30-year fixed mortgage rate increased 50 basis points to 3.55% between late December 2021 and late January, according to Freddie Mac. And as GOBankingRates recently reported, the Mortgage Bankers Association projects that the rate will climb to 4% by the end of 2022.

The effects have already been felt on home sales. U.S. pending home sales in December declined 3.8% from the previous month and 6.9% from a year earlier, the National Association of Realtors reported last week.

“The market will likely endure a minor reduction in sales as mortgage rates continue to edge higher,” NAR Chief Economist Lawrence Yun said in a news release.

That slowdown might not last too long, however. Demand for homes remains high in the United States, and the supply of available homes remains low. Freddie Mac estimates that the market is still 3.8 million homes short of meeting current buyer demand.

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Meanwhile, the drop in lumber prices continues a pattern of volatility that began during the early days of the COVID-19 pandemic. Prices reached all-time highs during the pandemic’s building boom, Bloomberg reported, but then crashed hard when sawmills accelerated production and high prices led to a drop in sales.

Complicating matters for the lumber industry are supply chain problems that keep getting worse. Flooding in British Columbia, a major lumber producer, disrupted supplies and shipments in late 2021, Bloomberg noted.

Shipments have also been impacted by COVID-19 vaccine mandates that apply to truckers crossing the Canada-U.S. border, as well as a shortage of truck drivers needed to deliver lumber from Canada to markets in the United States.

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