A combination of rising interest rates, record-high inflation and a red-hot housing market has led to a steep decline in lumber prices.
In the last 9 months, prices have fallen to their lowest point in almost a year. This is a far cry from a year ago, when prices hit a record $1,733, as demand for construction and home improvement spiked after the swine flu.
The 30-year fixed mortgage rose above 5% earlier this year, reaching its highest level since 2009. The prospects for anyone looking to buy a home have deteriorated because of the lower average 30-year rate and lower house prices. Consumers are dealing with soaring inflation that is making everyday goods more expensive.
Mortgage applications have fallen in the past week. Demand for mortgage refis fell 75% over the past week. Mortgage applications were in a "meltdown" according to Pantheon Macroeconomics.
It doesn't look good for lumber prices as fewer Americans can afford to buy a house.
80% of consumers say it's a bad time to buy a home in the current environment, according to a national housing survey conducted by the Federal National Mortgage Association. The sentiment is supported by a recent research note from Bank of America which stated that housing affordability has collapsed.
According to Doug Duncan, Fannie Mae Senior Vice President, and Chief Economist, consumers' expectations that their personal financial situations will improve over the next year reached an all-time high in the May survey.
The percentage of respondents who said it was a bad time to buy a home hit a new survey high in May. He said that the share reporting that it's easy to get a mortgage also decreased.
Homebuyers will likely continue to be squeezed by a surge in mortgage rates, home prices, and inflation as a result, Duncan said, signalling a grim outlook for lumber prices.
The US housing market is going through its worst period of decline since 2006 according to an economist for Freddie Mac. The decline will leak into the summer and there is no chance of a rebound.
The average national home prices rose by a record amount in March. The average price of a single- family home in April was $391,200, the highest since 1968 and double what it was seven years ago.
With the Federal Reserve ending an era of easy monetary policy, lumber prices could be set to decline further.
The combination of higher home prices, rising construction costs and moderately higher interest rates will push prospective buyers out of the market in the coming months according to Robert Dietz.
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