Lumber prices are tumbling. Here's what that means for the housing market now.

By Myra P. Saefong

Lumber buyers placed unsuccessful bets on tariffs and interest rates

Lumber prices have dropped by more than 14% from a record high in early August.

Many home builders, contractors and retailers wagered that higher U.S. tariffs on imports would boost the cost of lumber, while lower interest rates would lift demand for the building material.

But those bets have failed to pay off - and lumber prices have tallied a steep decline from a record high reached only three weeks ago.

That price decline could lead to a drop in production at a time when home-building and housing demand starts to heat up.

The demand component for spring 2025 was a "complete swing and a miss," said Greg Kuta, president and chief executive officer at lumber broker Westline Capital Strategies.

The industry has been hoping that interest rates will be lower and that there will be more structural demand, but it keeps "hoping for something that's not there yet," said Kuta, who believes the lumber market is oversupplied.

The market had rallied on classic "buy the rumor, sell the fact" action, he told MarketWatch. Prices for lumber had been higher just a few weeks ago based on the idea that tariffs were going to be attached to lumber and people were going to have to pay substantially higher costs - yet the underlying demand isn't there, Kuta said.

People also overestimated where interest rates would be and their impact on lumber demand, which continues to slide lower, he added, with the "swing and a miss" he referred to based on housing statistics and earnings for publicly traded companies that supply lumber.

Builders FirstSource Inc. (BLDR), for example, reported a year-over-year fall in second-quarter net sales and income. Meanwhile, second-quarter earnings from Home Depot Inc. (HD) and UFP Industries Inc. (UFPI) missed market expectations.

See: Home Depot says tariffs will lead to price increases, but they won't be across the board

On Tuesday, lumber futures for September delivery (LBR00) (LBRU25) settled at $595.50 per thousand board feet, down 14.3% from a record-high settlement of $695.50 per thousand board feet on Aug. 1, according to Dow Jones Market Data. That's based on data covering lumber futures contracts that have been trading since August 2022. Lumber futures have declined about 14% overall for the month so far, sharply pairing their year-to-date gain to 8.2%.

'Wait and see' phase

To stabilize lumber prices in a perfect world, you would have to have "organic demand," and the earlier the market may see that is probably the spring of 2026 - and probably more in multifamily than single-family home construction, said Kuta.

As far as interest rates, he added, the industry is in the "wait and see" phase.

Fed-funds futures suggest that there could be a 25-basis-point rate cut in September, but the problem is that the market probably needs anywhere from a full basis point to one-and-a-half basis points cut to "ultimately have that trickle-down effect into 30-year mortgage rates," Kuta said.

With lumber demand faltering so far in 2025, the industry has set its sights to 2026, with expectations for a stabilization and a move higher in lumber prices likely predicated on supply disruption, he noted.

Canadian mills are losing out with lumber prices well under the cost of production, so there will be more production likely to come out of this market to "put us into equilibrium with demand and supply," Kuta said.

Tariff worries

However, Steve Loebner, vice president of forest products and risk management at Sherwood Lumber, believes lumber demand has been "fairly consistent" and that there isn't a massive oversupply in the market overall.

Price volatility, he said, has been driven by uncertainty around tariffs and future supply levels.

Prices "got ahead of themselves with some overbuying on the way up, and a very large and unsustainable futures premium" developed, said Loebner.

Canadian Prime Minister Mark Carney in early August announced measures, including loan guarantees and investments, to support the domestic lumber market. Combined with that "overbuying" of lumber, prices have been in "free fall" since early August, said Loebner.

And as U.S. "tariff language became more acute," lumber buyers were "proactive in procuring supplies," said Walter Kunisch, lead strategist at HTS Commodities, a division of Hilltop Securities.

President Donald Trump threatened new tariffs on Mexico, Canada and China in early February. By March, the Trump administration started an investigation into the potential threat that lumber imports pose to U.S. national security.

The presidential action said the nation's softwood lumber industry has the "practical production capacity to supply 95 percent" of the U.S.'s 2024 softwood consumption - but even so, the U.S. has been a net importer of lumber since 2016. The presidential action called for recommendations on actions to mitigate threats from lumber imports, which may include potential tariffs or export controls.

But even before the outcome of that investigation, there are pre-existing duties on U.S. lumber imports from Canada that have nothing to do with the current presidential administration, said Westline's Kuta.

In late July, the U.S. Commerce Department lifted its antidumping duties on Canadian lumber imports to 20.56% from 7.66%. Earlier this month, the Commerce Department also said it was more than doubling its countervailing duties, also known as antisubsidy duties, on Canadian lumber imports to 14.63% from 6.74%.

Indications for the housing market

But prices and demand for lumber aren't quite where some buyers expected it to be against this backdrop of higher U.S. tariffs on imports and high interest rates.

If the lower prices for lumber do lead to a significant loss in lumber production, then the market will be "dramatically undersupplied if and when housing demand does increase into next year," said Loebner of Sherwood Lumber.

If that happens, prices for lumber could be significantly higher in the longer term, he noted.

U.S. confidence among home builders slipped in August as home-buying demand remained weak, data from the National Association of Home Builders released on Monday showed. July housing starts were stronger than expected, while building permits were lower than forecast.

Privately owned housing starts in July were at a seasonally adjusted annual rate of 1.43 million. The market had previously become accustomed to booming demand conditions - though if you take a bigger-picture view of current conditions, we are "actually in the middle of the range," said Loebner.

Typically, the industry sees an increase in demand going into the end of the year as builders gear up for first-quarter builds, he said, and there's "slightly better visibility" on projects for the fourth quarter of this year and first quarter of next year. That's "encouraging for future demand growth," he added.

-Myra P. Saefong

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