Lumber prices fall to new 2022 low as April existing home sales hit lowest level since the start of the pandemic

Existing home sales data showed a continued slowdown in the housing market, which caused lumber prices to fall to a new low.

According to data from Finviz, lumber futures fell as much as 6% to below $700 per thousand board feet, its lowest level since November. The weakness in lumber can be attributed to a sharp rise in mortgage rates, which remain above 5% and have led to a slowdown in demand for homes from buyers.

April existing home sales fell for the third straight month, dropping 2.4% from March levels and down 5.9% from a year ago to a seasonally adjusted annual rate of 5.61 million. The inventory of unsold homes increased to 1.03 million by the end of April.

Home prices are still moving higher even though the supply of homes is increasing. The median existing home sale price increased by 14.8% over the past year.

Higher home prices and higher mortgage rates have reduced buyer activity. It looks like more declines are imminent in the upcoming months, and we will likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years, according to Lawrence Yun, NAR's chief economist.

The largest share of home transactions in April went to first home buyers. All-cash sales accounted for 26% of home transactions last month, while individual investors or second home buyers purchased 17% of the homes, according to data from the National Association of Real Estate agents.

The surge in mortgage rates and tight housing market supply is putting pressure on the essential building commodity that typically sees a seasonal boost during this time of the year. Recent comments from a home builder survey showed that demand could fall for homes and therefore lumber, as homebuyers have trouble stomaching high mortgage rates.

The average 30-year fixed mortgage rate fell this week.

One homebuilder in San Antonio said in a survey that traffic has been halved since the hike in rates. Cancellations are starting to get worse due to loan declines and job losses, according to another homebuilder in San Bernardino. There are smaller waiting lists. There was an immediate change in buyer behavior when rates went up.

As long as mortgage rates stay elevated and the economy continues to show signs of slowing, it will be hard for lumber prices to regain the highs seen in 2021.

Finviz