Business

Lumber Prices Fall After Mortgage Rates Solidify Their Move Above 6%

  • Timber prices extended their 2-day decline to 10% after the Fed hiked rates by 75 basis points on Wednesday.
  • The Fed’s aggressive rate hike helped bolster the recent rise in mortgage rates above 6%.
  • “The timber market is still in a state of general malaise as buyers expect lower overall demand going forward,” Sherwood Lumber told Insider.

Timber prices fell 6% on Thursday, extending their two-day decline to 10% after the Federal Reserve raised interest rates by another 75 basis points.

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The Fed’s aggressive rate hikes have helped bolster the ongoing rise in mortgage rates, which climbed above 6% earlier this month for the first time since 2008 and have doubled in the past year. On Thursday, the average 30-year fixed mortgage rate rose another 27 basis points from last week to 6.29%, according to data from Freddie Mac.

The rise in mortgage rates has taken a big bite out of home sales, which in turn has led to price cuts and hurt homebuilders’ sentiment.

“The timber market is still in an overall slump as buyers anticipate lower overall demand in the future. Many yards are trying to keep inventory to a minimum and are not afraid of price increases,” said Steve, director of risk management at Sherwood Lumber. Loebner told Insider.

“This has taken all the urgency of the past two years out of the market. We’ve had a few supply and transportation concerns that caused short-term rallies, but these have all been quickly shaken off. mortgage interest and this is a process that can take some time,” Loebner said.

But the housing market has not completely fallen apart, and after falling more than 70% from all-time highs, timber prices could still bid in the future.

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“There is still a significant backlog in demand for existing single and multi-family homes [housing] Projects… Multi-family demand in particular has been very robust with many traders reporting near-record backlogs of projects on the books that will start in the coming quarters. We also started to see some modest [lumber] production constraints, which will become more frequent over time if prices remain low,” Loebner said.

Steady demand for the essential building raw material, combined with declining supply due to possible production constraints, could ultimately have a positive impact on timber in the future, at least as long as demand is maintained.

“We are facing a slower rut and a more challenging market environment. But with many of the benchmark wood products commodities already down about 70% from their levels earlier this year, the ubiquitous bearish sentiment and the likelihood of less supply, traders would do well to consider the risk/reward of being overly negative at this point,” concluded Loebner.

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