The Rallying of Lumber Prices is not Over Yet; Here’s Why

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on May 4, 2021
  • Lumber prices hit an all-time high on Monday at $1,600.
  • US housing boom is the main driver of the rallying.
  • The Fed’s aggressive momentary policy has maintained low mortgage rates.

Lumber prices have continued to surge amid the US housing boom. On Monday, it hit a record-high at $1,600.  

lumber prices

US Housing Boom

The home remodelling craze triggered by people staying at home due to the coronavirus pandemic has heightened the demand for wood. While that’s true, there is a broader factor that is fuelling the surge in lumber prices – US housing boom. The Federal Reserve has maintained that it will continue with its aggressive policy until the ongoing economic recovery is even and complete. Despite the ongoing inflation concerns, the US central bank left interest rates unchanged at near zero. Its asset-buying program is aimed to further lower borrowing costs.

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Subsequently, mortgage rates are lower. In comparison to the same period last year, the 30-year fixed rates have declined by 25 basis points. Besides, the rates have fallen by 196 basis points since the record-high of 4.94% in November 2018. Mortgage rates have also remained below 3%. This environment has fuelled a rise in home prices.

According to the National Association of Realtors, the existing homes’ median sale price hit $329,100 in March. The figure represents a surge by 17.2% YoY. Furthermore, the sale-to-list price ratio is at an all-time high of 101%. Interestingly, about 46% of the available single-family houses have been sold within a week after being listed on the market.

On the supply front, there has been a shortage of single-family houses in the past decade. After the 2008 housing bubble burst, developers shifted from these constructions to apartments. Subsequently, there was a shortage of about 3.8 million single-family units as at the end of 2020. As long as the housing boom continues, lumber prices will continue to surge to new records.      

Lumber Prices Technical Outlook

Lumber prices have continued to surge; hitting a new record-high on Monday. It hit an all-time high at $1,600 before pulling back to $1,575.6. For over a year, prior to the coronavirus pandemic, the commodity was trading around $400. In came the pandemic and low demand led most sawmills to close shop. As at early April, the prices were around $250.

However, demand has since recovered to unexpected heights. Since the beginning of 2021, lumber price has risen by about 81%. On a daily chart, it is trading above the short and long-term EMAs of 50 and 200 days. The prices are likely to continue rising as the bulls target $1,700. However, it is likely to experience some resistance at $1,600 in the near term. On the lower side, the support level will probably remain at $1,500.

lumber prices
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