Lumber prices plunge 12% to new 2022 lows as wood inventories start to pile up

• Lumber prices fell 7% on Wednesday and are down 12% this week as the commodity hits new 2022 lows.
• The building material has come under pressure as mortgage rates surge and new home sales drop.
• Lumber inventories are starting to pile up at mills and at home improvement stores.

Lumber prices fell 7% on Wednesday and are down 12% so far this week as the essential building commodity hit new 2022 lows of $604.50 per thousand board feet.

The decline has been persistent this year as mortgage rates surge to multi-year highs, with the traditional 30-year fixed mortgage rate still above 5%. That increased cost of borrowing has helped cool the housing market in recent weeks, with new home sales and existing home sales both declining.

Now, a glut is forming in the lumber market as inventories start to pile up at both saw mills and home improvement stores where pro-builders tend to shop. The sharp increase in lumber supply could lead to a continued downward spiral in lumber prices if demand doesn't pick up quickly.

Lumber buyers have slowed down their ordering and sawmills are beginning to slash their prices as inventory builds, according to a weekly report from Random Lengths, cited by The Wall Street Journal."Triple-digit discounts became the rule rather than the exception," Random Lengths said.

Canfor, one of the world's largest lumber producers, said it would extend a reduction in its production schedules as the company deals with the ongoing supply gut.

"The global supply chain crisis has had a significant impact to Canfor and Canfor Pulp in recent quarters. This has resulted in operational downtime with our sawmills in Western Canada currently running on a reduced schedule to manage excess inventories at our mills," Canfor CEO Don Kayne said in the company's earnings call last week.

Kayne expects those supply chain issues to last for at least several more months.

Meanwhile lumber inventories remain "flush" at home improvement retail stores like The Home Depot and Lowe's, according to a Wednesday report from JPMorgan, which included channel checks of several locations of the retail outlets.

"Pro traffic was the most balanced of the day with relative strength in hardware/fasteners and power tools, but, similar to other locations, lumber remained weak," JPMorgan said.

Lumber prices are down 47% year-to-date, and are off 65% from the 2021 high of $1,733 per thousand board feet. That significant price decline should help ease inflationary pressures in the housing market, as the cost to build comes down.