Lumber Prices Drop as Mortgage Rates Surpass 5%

Lumber prices per thousand board feet dropped 1.5% below their crucial $1,000 per thousand board feet level on Tuesday following another substantial increase in the popular 30-year fixed mortgage rate, which now rests at 5.02%, Insider reports. Higher mortgage rates are creating additional obstacles for homebuyers in an already frenzied housing market, and home builders are feeling the pressure too.

Supply-demand imbalances and record high housing prices are creating an affordability crisis that will eventually lead to a drop in housing demand as well as a subsequent slowdown in new home construction across the U.S. That means a break from booming business, but also a return to a pre-pandemic market equilibrium and a drop in sky high prices.

“We see a growing likelihood that the housing market will start to move from one of significant excess demand, which has fueled the house price and construction surge, to one where we are in better balance,” ING’s chief international economist James Knightley said in a note last month. 

A further rise in mortgage rates could help balance the supply and demand of new homes, which in turn could put continued weakness on lumber prices.