Home News Lumber Could Hit 2-Year Low As Mortgage, Fed Rates Throttle U.S. Housing 

Lumber Could Hit 2-Year Low As Mortgage, Fed Rates Throttle U.S. Housing 

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US interest rates and mortgage rates are moving in only one direction. As a result, prices, which are one of the key components of American homebuilding, could also fall in one direction.

The party seems to have ended over timber as buyers competed in the already overcrowded and expensive housing market for six months until April last year, further raising house prices.

US home prices have risen by more than 20% in the year to March, despite rising interest rates and mortgage rates, as shown by the Standard & Poor’s Home Index.

However, mortgages grew at the slowest pace in April, said Freddie Mac, a federal mortgage agency, with lending rates rising from aggressive federal reserve rate hikes in America’s fierce housing market. Strengthened the idea that it began to curb purchases at.

Real estate market executives have begun to admit that many already know, as the Fed becomes more and more warlike against interest rates after May’s inflation hit a new high in 1981. I am.

All charts by skcharting.com

Adding credibility to that idea is a study by Bank of America, announced by Markets Insiders over the weekend, showing that affordable housing prices have collapsed near the 1987 and 2005 lows. rice field.

The Fed, which is plagued by a higher-than-expected consumer price index last month, will raise interest rates by 50-75 basis points (bps) when the Federal Open Market Committee, which makes policy decisions, meets. This follows the 25 bps increase in March and the 50 bps increase in May. Some economists are betting on a 100bps hike in July if inflation doesn’t recede.

In terms of mortgages, traditional 30-year fixed mortgages exceeded 5% earlier this year, the highest since 2009. The average 30-year interest rate fell below 3% a year ago. Consumers are also coping with rising inflation, which is driving prices of everyday goods, from food to gas.

Soaring mortgage rates, the Fed’s actions, and triple wormies due to inflation speak for themselves. In the past week alone, mortgage applications fell by 7%, down 21% year-on-year, according to data compiled by Insider. At the same time, mortgage refinancing demand has fallen 6% over the past week, down 75% year-on-year. The consultancy Pantheon Macroenomics even said that mortgage applications were completely “melted down.”

Fannie Mae’s senior vice president and chief economist, Doug Duncan, said consumer concerns about personal financial conditions “reached record highs in May and expressed greater concern about job security.”

Added Duncan:

“In addition, respondents’ pessimism about home purchases was carried over to May, with a higher percentage of respondents saying it was a bad time to buy a home, and a new survey was conducted.” The share that reported “easy” also decreased. Across almost all segments. “

Not surprisingly, investors are concerned about the diminished interest in buying timber, a product directly related to housing.

Lumber prices rose in almost two of the six months of the year, down 54% from the beginning of 2022. The sharpest decline was in May, which alone accounted for a 37% drop, or more than two-thirds. Year loss.

Timber prices were $ 528 per board foot after hitting Monday’s nine-month low of $ 517 prior to Tuesday’s US futures contract.

Exactly a year ago, rising demand for construction and home refurbishment after the pandemic fueled speculative enthusiasm led to a record high of $ 1,733.

So where is the lumber heading next?

Lumber every week

Sunil Kumar Dixit, chief technical strategist at skcharting, com, said building materials could fall below $ 400, the lowest since June 2020, if the lumber ruts don’t stop.

However, he said, technical repurchases are likely to occur after the over-correction in May.

Timber approaches the horizontal support zone, and the week’s probabilistic readings of 1.20 / 1.72 require a bounce, targeting a 200-week simple moving average of $ 622 and a 50-month exponential moving average of $ 671. It indicates a “very oversold condition”. Said Dixit.

“Integration beyond this zone could give enough momentum to retest a 100-week SMA of $ 871 and a 50-week EMA of $ 899,” he said.

Reaching these areas will also help “close the runaway gap” between $ 812 and $ 920, Dixit explained.

He added that if the upside isn’t in charge, an additional $ 160 slide is likely to occur.

“As long as the price of timber lacks the purchasing power of more than $ 670, the price is expected to drop to $ 473, which is a 100-month SMA. The extended sale will bring building materials to a 200-month SMA. You could even be exposed to $ 368. “

Disclaimer: Barani Krishnan uses different views outside of himself to bring diversity to the analysis of any market. For neutrality, he sometimes presents a contrarian view and market variables. He does not have the goods or securities positions he is writing.

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