Lumber prices skyrocketed and pushed up U.S. home prices in the early days of the pandemic, spurred by increased remodeling demand from Americans stuck at home and a surge in suburban home sales.
In stark contrast to the real estate boom at the time, the U.S. housing market began to cool and lumber prices fell sharply as the Federal Reserve aggressively “received water.”
Chicago Lumber futures settled at $432 a thousand board feet on Tuesday, down about a third from a year ago and down 70% from their March highs. At present, lumber prices have fallen to the lowest level in more than two years, indicating that the U.S. housing market is cooling rapidly. The latest data shows that the S&P Case-Shiller 20-city home prices fell 0.44% month-on-month, the first decline since March 2012.
The Framework Composite Index, which tracks lumber sales, fell to $520, down more than 60 percent from the start of March, according to Random Lengths, a lumber pricing service. Lumber has been a bellwether of falling commodity prices since the Fed worked to reduce inflation and cool an overheated housing market.
Borrowing costs in the housing market are currently soaring, with 30-year fixed mortgage rates averaging 6.29% last week, the highest level since October 2008, leading to a deterioration in American housing affordability and a sharp slowdown in home sales. Housing starts also fell sharply.
According to the U.S. Census Bureau, U.S. housing starts fell about 13% in August from April, when residential construction activity reached its highest level in more than a decade. In addition, building permits are also falling steadily in August, the lowest level since June 2020.
The National Association of Home Builders said its builder confidence index fell for the ninth straight month in September, reaching pessimistic levels not seen since the 2020 coronavirus lockdown and the 2008 housing crash. Industry experts point out that the lumber industry is facing a degree of decline.
Paul Jannke, head of lumber at U.S. Forest Economic Consultants, said his company's lumber consumption is expected to fall 2.5% this year and 4.5% in 2023 as homebuilding and remodeling demand returns to normal after the pandemic boom.
Despite the sharp drop in consumption, Jannke and other analysts expect lumber prices to be well above the $200 per thousand board feet seen in previous downturns, and expected to be around $200, largely due to record low dealer inventories and ongoing plant costs. rise.