The Expert Podcast

You might think that the housing market and interest rates would do a lot to tamp down and reduce lumber prices, but that's where you'd be wrong. If you look at the latest trends, lumber prices are still going up from where they were before. According to this article, lumber prices defy the surge in mortgage rates to rally 10%. So homebuilders are still benefiting from the interest rates. You might think, well, if interest rates are going higher, how does that help homebuilders? The reason why is that inventory is the biggest factor in home sales right now, not the interest rates.

You would think that as rates go up, home prices and sales will go down. Sales are going down, but it's not mostly because people don't want to afford the higher rates and higher prices. It's mostly because there's not enough houses for sale. People who currently own homes with a 2%, 3%, or 4% mortgage don’t want to sell because they want to hang on to their mortgage. So what's happening is that the housing market cools into the fall, but builder sales could rise with fewer pre-owned homes going for sale. The only houses coming into the marketplace are from new construction. Builders are benefiting from the housing market being so scarce that they’ll be in the driver’s seat for years to come. This isn't going to change anytime soon.

So, if you're a builder, contractor, or in the trades, you’ll find that your business model has a lot of benefits if you align yourself correctly. You don’t want to build spec homes because you never know what’s going to happen with values. But you do want to look for people who want to construct a new home or put on an addition. Be aware that lumber prices might still fluctuate, so you want to put that into your contract. Also, be aware that there may be even higher rates—look at 7.2% or close to 8%. You might think rates are high, but that's only if you think about what they were 3 years ago. An 8% mortgage or 9% mortgage is kind of where the average has been.

If you go back in a 30-year history of mortgages, I remember a time when, in the '80s, rates were 12%, 13%, or even 18%. Anything close to 10% was a great rate. 9% would be half of that. Look, it's probably not going to jump up to 12% or 18%, but it’s likely going to hover around 8% for the next year or so and might even crack over 9% at some point in 2025. It’s not going to go back down to 3% or 4%, and it probably won’t even go back down to 5% or 6%. So, buyers and builders need to keep their math based on a mortgage rate at about 7% or 8%. If you can build or buy a house at 7% or so, then go ahead and do it. You’re not going to wait for rates to go back down that far.

I know you have an opinion about this—put a message in the comments and let us know what you think about lumber prices, interest rates, and whether or not you agree with the idea that builders will be in the driver’s seat for years to come. Builders are already starting to come up with some problems. They’re not having as much luck developing inventory, meaning that land is becoming more scarce. A lot of the land that was available and could be zoned and developed for single-family homes is now becoming more difficult to develop due to zoning laws, approvals, and permitting for specific property uses.