Timber prices fall as interest rates rise

Timber prices have crashed in a fresh sign of how rising interest rates are deflating markets that have boomed during the pandemic.

Timber prices were a leading indicator of supply chain issues and inflation following the pandemic shutdowns. Prices soared in the summer of 2020 as locked down Americans turned in droves and demand for suburban homes skyrocketed. Last spring, wood cost more than double the pre-pandemic price. Now, two-by-four pricing is on the safe side.

Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from the high reached in early March. Local wood prices also fell. Pricing service Random Lengths said on Friday its composite framing index, which tracks spot sales, fell about 12% in the past week to end at $794. That’s down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.

The Fed raised rates again this month and is expected to continue raising borrowing costs to slow consumption and keep inflation under control. The housing market should bear the load. The central bank is chasing an interest rate that will slow soaring house prices by reducing the number of buyers without triggering a painful economic downturn.

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

The average rate on a 30-year fixed-rate mortgage was 5.1% last week, down from 3.1% at the start of the year, according to Freddie Mac, a rise that further weighed on affordability . New home sales fell 16.6% in April from March, the lowest level since April 2020, when closings rocked markets. It’s the biggest drop in nine years, the Commerce Department said last week.

Single-family home completions, housing starts and building permits each fell in April, according to the Census Bureau.

Lumber buyers have slowed orders and lumber is piling up at sawmills, which are slashing prices, according to Random Lengths. “Three-digit discounts have become the rule rather than the exception,” the service said in its weekly price bulletin Friday.

While some worry about a major construction slowdown, many are simply not stocking up like they were last year when dealers and builders struggled to keep up with demand and hoarded lumber. when they could find it, said Ash Boeckholt, co-founder and chief revenue officer. responsible for the online marketplace for wood products MaterialsXchange.

“Buyers don’t have the same mentality of having to go out and buy 10 when they only need five,” Boeckholt said.

In a monthly survey of building products dealers, only 12% of respondents said they had slightly low to very tight stocks of wood and wood panels in April, compared to 61% who said low stocks a year earlier, according to John Burns Real Estate. Consultant.

Inventories have been able to reach normal levels as the supply chain improves, and prices are falling as demand for new homes has been dampened by rising mortgage rates, said Matthew Saunders, who leads research on the company’s building products.

Yet barring a recession, he doesn’t expect lumber prices to fall back to pre-pandemic levels, which rarely topped $500 per thousand board feet. This is due in part to problems in the forests of western Canada, where mills have struggled with fires, floods, high prices and hard-to-obtain lumber, shipping issues and U.S. border duties. .

Canfor Corp.

, one of the continent’s largest lumber producers, said on Thursday it was extending reduced operating hours at its western Canadian sawmills and implementing rotating downtime. two weeks this summer because the wood is piling up in his yards. Canfor said its Canadian sawmills have been operating at around 80% capacity since the end of March.

“Global supply challenges continue to significantly limit our ability to transport product to our customers, and our inventory levels remain very high,” said Managing Director Don Kayne.

Lumber buyers have slowed orders and lumber is piling up at mills, which are slashing prices, according to pricing service Random Lengths. A pile of lumber at a yard in Orem, Utah.


Photo:

George Frey/Bloomberg News

Besides home construction, lumber traders and analysts eye the aisles of Home Depot and Lowe’s.

They are looking for signs that consumers are shifting their spending from home improvement projects to entertainment and vacations.

A particularly steep drop in the price of Southern yellow pine — popular with caterers and stockpiled in home centers for deck builders and do-it-yourselfers — portends a slowdown in the repair and remodel segment.

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

Earlier: Demand for lumber has skyrocketed during the pandemic, pushing prices to all-time highs. This video explains what is driving the timber boom, who benefits from it, and why those who grow the trees are not reaping the benefits. Illustration: Liz Ornitz/WSJ

Write to Ryan Dezember at [email protected]

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