What Does Lumber Prices Increase Mean for Housing Market

What Does Lumber Prices Rise Increase of 18%, After a Decline of 56% Mean for the Housing Market

Over the past five months or so, there has been sell-off that saw lumber prices decline by almost 65%. This coupled with mortgage rates surging above 6%, concerns grew that demand for housing would plunge amid a real estate downturn. Lumber prices recently surged back by 18% at its high of $565 per thousand board feet. Signs are now pointing that the real estate market could be on the verge of sticking a "soft landing," according to Altos Research CEO Mike Simonsen.

Simonsen pointed out that housing inventory growth, or the growth of single family homes available for sale, has started to slow in recent weeks, and its likely there will only be 535,000 homes for sale by year-end, if not less. 

"Do we have to revise this forecast down?!" Simonsen said, noting that growth slowed even when accounting for a decent jump in inventory growth in early August. The lack of new home listing means "the voracious demand is gone," Simonsen said. 

Median home prices have hovered just under $450,000 over the past month while the price of new listings has declined to about $400,000, according to Simonsen. 

"The price of new listing shows us the most egregious overprices are gone. But normal seasonal patterns look just fine," Simonsen said. Additionally, the removal of "egregious overpricers" in the housing market echoes comments from LGI Homes CEO Eric Lipar, who said in his company's recent earnings call that they will bring down prices to help boost sales, and that prior record profit margins are likely just that, a record that won't be seen again anytime soon.

"We will normalize our pricing. Yes, we will probably be selling the same floor plans in the future for less money than we were over the last 24 months. But it's going to be similar to what it was two years and three years ago, because the last couple years are just going to be an outlier as far as [home] pricing goes," Lipar said

Ultimately, if the housing market sticks a soft landing and doesn't crater, that could be a boon for the sustainability of long-term housing demand and lead to a rebound in lumber prices as homebuilder activity picks back up.

Net-Net is that housing prices are a sum of many different variables. Some variables can have a higher impacts on prices and consumer sentiment. Understanding these variables, allows realtors to create the best strategy for buyers and sellers. As a recent example, in on of my recent closings, we did not have to deal with a bidding war, so both the buyers and sellers were able to achieve what they were looking for. We are here to support you and I'm looking forward to helping my clients anyway I can.