However, lumber (like everything else these days) has been rising in price. That is until somewhat recently. You see the price of lumber is down about 37% from this time last year, and it’s down about 28% from earlier this month. (Source: Koyfin – Continuous Lumber Futures Contract)
Could that be a signal? Well, home builders use a lot of lumber, and they purchase it when they are going to need it (or anticipate they are going to need it).
Based on the fact that lumber pricing is coming down steeply, home builders may be planning for a slowdown.
If you look at mortgage rates, you can see why this might be the case.
Mortgage rates have been rising aggressively as lenders anticipate the fed raising interest rates. The average rate on a 30 year fixed loan is up 50% from last summer.
And this has an impact on home prices for both existing and new homes.
You see, no one buys a $500k home. You buy your home based on the monthly payment you can afford. With rates at 2.77% last summer, you could pay $2,050 for a $500k mortgage. Now, you have to pay $2,430.
If you want to keep the same payment, you’re going to be shopping for a $420,000 property – which is a 16% reduction in the amount of home you can purchase.
Home builders are aware of this, and they know that means they may be selling fewer homes, or they may not be getting the same profits on homes they build. As such, this could be part of the reason that lumber prices are coming down.
What does this mean if you own your home? Well, just as you’ve seen prices in your neighborhood rising, you may see that reverse course.
This is fine if you are looking to stay put, but if you are planning to move, you may want to keep prepare for this.
Your home is probably one of your largest assets, and therefore it can have a major impact on your financial plan.
When it comes to making a decision regarding your home, make sure to consult your financial advisor. If your financial advisor can’t help, call us.