Lumber Prices Go Timber In U.S. Market

According to The Hustle, supply chain concerns and an increase in house projects prompted lumber prices in the United States to surge during the epidemic.

Photo Insert: The lumber scenario is unlikely to improve any time soon, given the Federal Reserve's commitment to increase rates to combat inflation.

However, the Wall Street Journal (WSJ) reported that a changing macroeconomic environment has left many dealers perplexed, with lumber futures down 52 percent since early March.

Because of supply chain difficulties, lumber customers ordered more than they needed. However, certain changes in the housing industry have shifted the supply and demand relationship significantly.

Since the beginning of the year, the Federal Reserve boosted interest rates, causing the average 30-year fixed-rate mortgage to rise from 3.1 percent to 5.1 percent, and single-family house completions, starts, and building permits all fell in April.

Rising rates, little inventory, and high asking prices combined to cause a 16.6% reduction in new home sales between March and April, the greatest drop in nine years. The logs have been left in the hands of lumber traders. Only 12% of dealers reported low inventory in April, down from 61 percent a year ago.

To avoid stockpiling too much inventory, several merchants are slashing prices drastically. Lumber companies are reducing their operations as dealers stall their orders. Canfor Corp., a major Canadian lumber manufacturer, has been running at less than 80% capacity since March and intends to keep running at that level throughout the summer.

The lumber scenario is unlikely to improve any time soon, given the Federal Reserve's commitment to increase rates to combat inflation.

However, one expert predicts that challenges in Canada's western forests, shipping issues, and border duties will prevent prices from falling to pre-pandemic levels. In other words, if costs kept you from completing that home improvement job last year, now might be a good time to rethink.

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