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Lumber soars 13% as the housing market shows signs of a rebound for the first time in a year

Real estate agents work an open houseReal estate agents work an open house in West Hempstead, New York.

Raychel Brightman/Newsday RM via Getty Images

  • Lumber futures soared 13% on Friday as the housing market finally shows some signs of life.
  • Pending home sales unexpectedly jumped 2.5% in December, its largest growth since October 2021.
  • The average 30-year mortgage rate has steadily trended lower to 6% from a peak of 7% last year.

Lumber prices soared as much as 13% on Friday as the housing market shows signs of life for the first time in over a year.

Lumber futures jumped to $524 per thousand board feet, its highest level since mid-October. The essential building commodity is up 21% since encouraging housing market data was released earlier this week, and is up 37% year-to-date.

Lumber had been pummeled throughout 2022, falling 67% as soaring mortgage rates weighed on the housing market considerably.

The average 30-year fixed mortgage rate peaked at about 7% last year, but has since dropped down closer to 6%. And that decline in mortgage rates has helped breathe some life into the housing market, with mortgage application volume jumping 7% last week. 

Meanwhile, pending home sales unexpectedly jumped 2.5% in December, marking its first period of growth in seven months and its highest growth rate since October 2021. The median expectation among economists was for a decline of 1%.

The modest rebound in housing market activity has also helped boost homebuilder sentiment in January, which unexpectedly jumped for the first time in a year and signals that the housing market could see a pickup in activity during the upcoming spring and summer homebuilding seasons.

And that’s crucial for driving the price of lumber, according to Domain Timber Advisors.

“We feel lumber prices have come out of the recent cycle of severe volatility and returned to the long-term historical trend… While we do expect a near-term slowdown in housing (a primary driver of lumber demand), in our opinion long-term fundamentals remain strong for housing demand,” Domain’s Scott Reaves told Insider in an email.

Whether demand for homes, and in effect lumber, rebounds this year largely depends on the trajectory of mortgage rates. To that end, the Mortgage Bankers Association forecasts the 30-year fixed rate to end 2023 at 5.2%, and to end 2024 at 4.4%.

While those rate forecasts are still near double the lows seen in early 2020 shortly after the start of the pandemic, they would still be welcomed by home buyers who recently had to grapple with mortgage rates as high as 7% last year, a level that severely impacted affordability for buyers. 

Finally, the National Association of Realtors said it expects existing home sales to reach 4.8 million in 2023. While that would represent a 7% decline from 2022, it wouldn’t dent home prices, according to the associations forecast. The NAR expects the median home price to increase 0.3% this year, compared to a near-10% gain in 2022. 

If that forecast materializes, pricing stability could give homebuilders more confidence in their outlook and lead to further demand for lumber, potentially pushing prices higher. 

Read the original article on Business Insider