bird s eye view of woodpile

Lumber on the Way to Another Run Up?

Lumber prices have risen again in the first two weeks of the year. YTD lumber has already gained over 7% and currently stands at $1,307.10 per 1,000 board feet.

Last year, lumber has already seen a sharp increase, ending at a price of nearly $1,700 per 1,000 board feet. After that, however, prices plummeted back to $450 before rising again at the end of 2021 and the beginning of 2022.

Now another rally is in the pipeline for the beginning of 2022.

Since the price of lumber depends largely on the construction of houses, the focus must be drawn to this area.

Construction companies had already complained last year about rising prices, but most of them were contractually bound to house buyers and could not pass on these rising prices, so to speak. This was also shown by the latest U.S. Building Permits figures, which rose for the third month in a row in November with an increase of 1.7 million. The next official figures from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development will be released on January 19.

What could stop this from happening?

The U.S. Federal Reserve (Fed) could have a decisive influence on this, namely with interest rates. After the inflation figures for December showed a further increase of 7%, statements by Fed officials on the subject of interest rate hikes are becoming more aggressive. If interest rates rise, it will increase the cost of borrowing and thus also the mortgages. This in turn could deter people from deciding to build a home and thus not take out a mortgage.

Of course, this again depends on the size of the interest rate hike. Although the Fed is talking about several interest rate hikes in 2022, one can hardly imagine that this will be disproportionate. Too many factors speak for a low-interest rate increase, such as the high debt of governments. To pay back these debts with a high-interest rate could lead to a default.

The next figures that will be published next week could already set new impulses for further price movements.

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