US mortgage rates topping 18% comparable to the 1981 market

Wood products traders struggling to navigate the current interest rate climate may find a measure of solace when looking back at 1981, when the average fixed-rate mortgage peaked at a record 18.63%.

When it comes to significant economic impacts affecting the market, 1981 was a case study for the ages. Not only did mortgage interest rates soar to staggering levels, but it had the expected impact on the housing market.

US mortgage rates impacts housing starts

Total housing starts in 1981 fell to 1.084 million units, down from 1.292 million in 1980. Recessionary factors worsened as 1981 progressed, and the seasonally adjusted annual rate of housing starts bottomed in October at 864,000 units.

The resulting slowdown in demand for wood products also led to sharp cutbacks in mill production. A report in the October 9, 1981, issue of Random Lengths said, “More than half of the sawmill workers in the western US have been affected by mill closures or curtailments, according to the Western Wood Products Association (WWPA). The WWPA counted 148 mills down and 282 curtailed in the West for the week ending October 2.

“Some 54,900 employees, or 54% of the work force, were laid off or were working reduced hours. The WWPA estimated production in the West at 76% of normal.”

The Southern Forest Products Association estimated production in the South at 66% of normal, with 35% of the workers in the region laid off. The American Plywood Association counted 35 mills closed and 58 curtailed. Output at British Columbia (B.C.) sawmills was estimated by the Council of Forest Industries to be about 75% of normal.

That was an especially tough year in B.C. because nearly all of the province’s forest products operations were shut down that summer by a labor strike. A settlement was reached in August after a little more than a month on strike, but many operations were slow to return to production because of the dire economic conditions.

Lumber prices were weak for much of the year, but hit a bottom in the fall. The Random Lengths Framing Lumber Composite Price hit its low of 1981 in mid-November at $163 after starting the year at $195.

A glut of salvage logs added to the issue of excess supplies in the market, but came from a nontraditional source. Logging of timber damaged by the volcanic eruption of Mount St. Helens in May 1980 led to what traders described as excessive volumes of Douglas Fir 2x4s hitting the market.

Another historic moment was also captured in the archives of Random Lengths in early April 1981. “Early in the week, traders in all regions abandoned their phones to follow the developments surrounding the attempted assassination of President Reagan. Activity returned slowly Tuesday and, for some, it never regained the previous week’s pace.”