The rise in timber prices is not yet over; here’s why
Lumber prices continued to climb amid the housing boom in the United States. On Monday, it hit a record high of $ 1,600.
Housing boom in the United States
The home remodeling craze sparked by people staying at home due to the coronavirus pandemic has increased demand for wood. While this is true, there is a larger factor fueling the surge in lumber prices – the housing boom in the United States. The Federal Reserve has maintained that it will continue its aggressive policy until the ongoing economic recovery is uniform and complete. Despite lingering inflation fears, the US central bank left interest rates unchanged at near zero. Its asset purchase program aims to further reduce borrowing costs.
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Subsequently, mortgage rates are lower. Compared to the same period last year, 30-year fixed rates have fallen by 25 basis points. In addition, rates have fallen by 196 basis points from a record 4.94% in November 2018. Mortgage rates have also remained below 3%. This environment fueled a rise in house prices.
According to the National Association of Realtors, the median selling price of existing homes hit $ 329,100 in March. The figure represents an increase of 17.2% year-on-year. In addition, the list price / list price ratio is at an all-time high of 101%. Interestingly, about 46% of the single family homes available were sold within a week of being introduced to the market.
On the supply side, there has been a shortage of single family homes over the past decade. After the 2008 real estate bubble burst, developers moved from these constructions to apartments. Thereafter, there was a shortage of approximately 3.8 million single-family units at the end of 2020. As long as the housing boom continues, lumber prices will continue to climb to new highs.
Technical outlook for timber prices
Wood prices continued to rise; hitting a new record on Monday. It hit an all-time high at $ 1,600 before falling back to $ 1,575.6. For more than a year, before the coronavirus pandemic, the commodity was trading around $ 400. Indeed, the pandemic and weak demand have led most sawmills to close shop. In early April, prices were around $ 250.
However, demand has since returned to unexpected highs. Since the start of 2021, the price of timber has increased by around 81%. On a daily chart, it is trading above the short and long term 50 and 200 day EMAs. Prices should continue to rise as bulls target $ 1,700. However, it is likely to see some resistance at $ 1,600 in the near term. On the lower side, the support level will likely stay at $ 1,500.