Right from equities to crypto, most asset classes have fallen victim to bears. Of late, assets belonging to the commodities bracket have also been treading on the same path. Now, according to data, lumber prices have dropped to their pre-pandemic levels. The same is an indication of brakes being applied by the construction sector.
Lumber futures ended Monday at $410.80 and Tuesday at $429.30 per thousand board feet. The same roughly depicts a one-third depreciation from a year ago and a more than 70% drop from their March peak.
Macro factors to be blamed?
During the initial days of the pandemic, lumber prices took a massive hit. However, by the next summer, Americans stuck at home started remodeling en masse. Resultantly, suburban home sales surged and things started getting back on track.
Of late, however, the approach adopted by the central bank to tame rising consumer prices has impacted lumber prices negatively. Elaborating on the same, a recent WSJ article noted,
Lumber has led the way down for commodities since the central bank took aim at rising consumer prices and the overheated housing market. For two years, climbing lumber costs lifted home prices. Now home builders say that cheaper wood is giving them wiggle room to offer buyer incentives and to trim prices without crimping their profit margins.
Furthermore, Wood-pricing service Random Lengths told WSJ on Tuesday that its framing-lumber composite index—which tracks cash sales in several species—fell to $520, down more than 60% from early March. The report further chalked out,
Now that supply issues have eased and the highest mortgage rates in more than a decade have slowed home sales, buyers are no longer hoarding lumber for fear of running out.
Additionally, mortgage rates have been on the rise and are on the verge of approaching 7%. The same has further caused a dent. Commenting on similar lines, Alexander Snyder—Portfolio Manager, Real Estate Securities at CenterSquare Investment Management—said,
“Home builders have faced an enormous uptick in cancellations over the past several months due to the sharp rise in mortgage rates and the related softening demand for home buying.“
He added,
“The trickle down of higher rates is cascading into lower demand for new houses, which leads to lower demand for lumber, which leads to lower prices for lumber.“