The continued slowdown in the US housing market has taken its toll on lumber prices, which fell to its lowest level since June 2020 on Monday.
The essential building commodity tumbled 9% in three days to a low of $382.80 per thousand board feet, below the $400 level that has served as key resistance since 2013. Lumber rebounded slightly on Tuesday, up about 5% to $411. Prices are down 64% year-to-date.
The weakness in lumber largely stems from this year’s deceleration seen in all facets of the housing market, as soaring mortgage rates helped slow down sales, rein in home price growth, and put a serious dent in home builder confidence.
The average 30-year mortgage rate currently sits at 6.5% according to data from Freddie Mac, which is off the recent high of 7.03%, but still about double the levels seen at the start of the year. The surge in mortgage rates decreased the affordability for new home buyers, which led to a significant slowdown in existing home sales.
In October, existing home sales fell 6% month-over-month, representing the ninth straight monthly decline in a row, while existing home sales were down 28% year-over-year. And according tot he Case-Shiller US National Home Price Index, home price growth decelerated for the sixth straight month in 2022.
All of this has put a dampened mood on the outlook of US home builders, who drive a bulk of the demand for lumber as they embark on new construction projects. US homebuilder confidence fell for the 11th straight month in November to its lowest level in a decade.
The report showed that builders are adding more buying incentives to spark sales of new homes, signaling how higher mortgage rates have taken a toll on prospective buyers. That’s why any reversal in this year’s sharp uptick in interest rates could have a strong effect in shoring up confidence in the US housing market.