Lumber Prices Slump With Rising Interest Rates

Lumber prices fell in a fresh sign that rising interest rates are deflation of markets that boomed during the pandemic.

Timber prices are a leading indicator of supply chain problems and inflation following the pandemic shutdowns. Prices skyrocketed in the summer of 2020 as stubborn Americans remodeled in bulk and demand for suburban homes skyrocketed. Last spring, lumber cost more than double its pre-pandemic high. Now, two-quarters of the price is flashing cautiously.

The July timber futures contract ended on Friday at $695.10 per thousand feet, down 52 percent from its early-March high. Spot wood prices also fell sharply. Pricing service Random Lengths said on Friday that its framing composite, which tracks cash sales, fell about 12% last week to end at $794. This is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.

The Fed raised interest rates again this month and is expected to continue raising borrowing costs to slow consumption and contain inflation. The housing market is expected to shoulder more burden. The central bank is chasing an interest rate that will slow home price growth by cutting the number of buyers without triggering a severe recession.

Higher rates, coupled with a limited supply of homes for sale and large asking prices are starting to take their toll.

The average interest rate on a 30-year fixed-rate mortgage was 5.1% last week, up from 3.1% at the start of the year, according to Freddie Mac, an increase that makes the possibility affordability continues to be strained. New-build home sales fell 16.6 percent in April from March, to their lowest level since April 2020, when shutdowns rocked the market. It was the steepest drop in nine years, the Commerce Department said last week.

According to the Census Bureau, works completed, commenced and built a single-family home were reduced in April.

Lumber buyers have slowed orders and the wood is piling up at mills, which are dropping prices, according to Random Length. “Three-digit discounts have become the rule, not the exception,” the service said Friday in its weekly pricing bulletin.

Ash Boeckholt, Co-Founder and Chief Revenue Officer said: “While some are concerned about a major slowdown in construction, many are simply not stocking up like last year when dealers and builders alike have trouble meeting demand and stock up on wood when they can find it, said Ash Boeckholt, co-founder and chief revenue officer at online wood products marketplace MaterialsXchange.

“Buyers don’t have the mentality to go out and buy 10 when they only need 5,” says Mr. Boeckholt.

In a monthly survey of building product dealers, only 12% of respondents said they had very low to very tight wood and plank inventories in April, down from 61% said supply was low a year earlier, according to John Burns Real Estate. Advise.

Inventories could rise to normal levels thanks to an improved supply chain and falling prices as demand for new homes has been hampered by the slowdown, said Matthew Saunders, head of the company’s building products research group. higher mortgage rates.

Amid the economic downturn, however, he does not expect lumber prices to fall back to pre-pandemic levels, rarely exceeding $500 per thousand feet. That’s partly due to problems in Canada’s western forests, where mills grapple with fires, floods, high and hard-to-find timber prices, shipping and tax issues at the US border. Ky.

Canfor Corp.

, one of the continent’s largest timber producers, said on Thursday that it has extended its reduced schedule of operations at its sawmills in Western Canada and will be implementing a rotational shutdown in the coming weeks. two weeks this summer because wood is piling up in their yard. Canfor says its Canadian sawmills have been operating at about 80% of production capacity since the end of March.

“Global supply challenges continue to significantly limit our ability to ship products to our customers and our inventory levels remain extremely high,” said CEO Don Kayne. .

Buyers of lumber have slowed orders and lumber piled up at mills, which are dropping prices, according to pricing service Random Length. A pile of wood at a field in Orem, Utah.


Image:

George Frey / Bloomberg News

Besides housing construction, lumber analysts and traders are eyeing Home Depot and Lowe’s aisles.

They are looking for signs that consumers are shifting spending from home improvement projects to leisure and recreation.

A particularly sharp drop in Southern yellow pine prices – favored by people and stocked in home centers for builders and do-it-yourselfers – indicates a slowdown in the repair and remodeling segment.

“A lot of home projects have been done. What else have we had to do in the last two years? ” said Mr Boeckholt, who recently decided with his wife to skip the new tiled patio and take a trip to Portugal instead.

Before that: Demand for lumber has skyrocketed during the pandemic, sending prices to all-time highs. This video explains what’s driving the logging boom, who’s profiting, and why growers aren’t reaping the benefits. Illustration: Liz Ornitz / WSJ

Write to Ryan Dezember at ryan.dezember@wsj.com

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https://www.wsj.com/articles/lumber-prices-slump-with-rising-interest-rates-11653835230?mod=rss_markets_main Lumber Prices Slump With Rising Interest Rates

Edmund DeMarche

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