New house market remains steady, despite high construction prices
U.S. lumber reached a 2022 high of $1441 per MBF in March
MADISON, Wis. — The latest housing statistics revealed a business being tugged in different directions by strong trends – often running in parallel with one another.
Throughout the U.S., prices for lumber for framing houses dropped dramatically from a high so far in 2022 of $1441 per MBF on March 4, according to Random Lengths, to a more normal level of $700 per MBF on May 27. The futures market projected prices in that more normal range.
The boost in lumber prices has had a limited impact on log prices, particularly for hardwoods. But the housing market does have a substantial impact on some hardwoods, with demand increasing for furniture, doors, flooring and other housing features.
The current 30-year mortgage rate has reached 5.1%, nearly double the rate at the end of 2021, which means the interest cost on debt for families eyeing the purchase of a new home has also doubled. The mortgage rate move followed boosts in interest rates by the Federal Reserve Bank as it moved to slow rising inflation.
In the meantime, the National Association of Home Builders (NAHB) called on the White House to suspend Canadian lumber tariffs, which the NAHB claims artificially inflates housing prices. The tariffs were imposed based on what the U.S has asserted are unfair government subsidies to Canadian lumber. They are set to be reduced to 11.64% in August from 17.9%. The NAHB has pushed for a “new long term lumber agreement” with Canada.
These changing economic conditions are affecting American consumers, according to the University of Michigan’s Consumer Sentiment Index. The index dropped by over 10% in April. “This recent drop was largely driven by continued negative views on current buying conditions for houses and durables, as well as consumers’ future outlook for the economy, primarily due to concerns over inflation,” said Joanne Hsu, the Director of the Surveys of Consumers.
Despite these changes, the new house market remained strong. Housing starts were flat in April with a total of 18M new housing permits issued on an annualized basis, down less than 4 percent from December (before the mortgage interest rate boost).