Lumber Prices Drop 40%, Bringing Relief to Homebuilders

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Homeowners realize nearly 20% equity jump in a year according to CoreLogic’s latest Homeowner Equity Report that was released This Week in Real Estate. The average annual gain in equity was the largest in at least a decade. In other news, lumber posted their biggest ever weekly decline last week. Lumber prices have dropped almost 40% from the record high reached on May 10. Below are a few newsworthy events from the second week of June that influence our business: 

Double-Digit Home Price Gains Boosted Home Equity to New Highs. The amount of equity in mortgaged real estate increased by $1.9 trillion in Q1 2021, an annual increase of 19.6%, according to the latest CoreLogic Homeowner Equity Report. The average annual gain in equity was $33,400 per borrower – the largest average equity gain in at least 10 years. Idaho, California, and Washington saw the largest equity gains at $70,900, $69,600, and $65,800, respectively. While the coronavirus pandemic created economic uncertainty for many, the continued acceleration in home prices over the last year has meant existing homeowners saw a notable boost in home equity. The accumulation of equity has become critically important to homeowners deciding on their post-forbearance options. In contrast to the 2008 financial crisis, when many borrowers were underwater, borrowers today who are behind on mortgage payments can tap into their equity and sell their home rather than lose it through foreclosure. Home equity reached new highs in early 2021 as home prices increased by double digits in March. This increase in home equity will buffer homeowners from hardships caused by the pandemic.

Mortgage Lenders Loosened Credit Standards in May. Mortgage credit availability increased by 1.4% in May – a sign that volume-hungry lenders continued to loosen credit standards in a highly competitive market, according to Thursday data from the Mortgage Bankers Association.  MBA’s Mortgage Credit Availability Index (MCAI) which uses 100 as a benchmark – increased to 129.9 in May. A decline in the MCAI suggests that lending standards are tightening while a higher number suggests loosening credit standards. Lenders concerned over borrowers’ ability to pay their bills at the beginning of the economic shutdown resulted in an exponential tightening of credit. However, May’s credit availability inched to its highest level since the early days of the pandemic, but remained at 2014 levels.

Lumber Prices Post Biggest-Ever Weekly Drop With Buyers Balking. Lumber futures posted their biggest-ever weekly loss, extending a tumble from all-time highs reached last month as sawmills ramp up output and buyers hold off on purchases. Lumber has now dropped almost 40% from the record high reached on May 10. Sawmills appear to be catching up with the rampant homebuilding demand in North America that fueled a months-long rally, bringing some relief to a market beset by supply shortages and price surges. U.S. lumber production has responded to the price rally by ramping up output by 5% over the past 12 months with another expected increase of 5%, or roughly 1 billion board feet. While lumber prices may finally be pulling back from stratospheric highs, don’t look for a return to pre-pandemic levels any time soon, according to BMO Capital Markets. With strong U.S. home building expected to last for several years, lumber prices will likely remain above $500 per 1,000 board feet for the next five to eight years, said Scott Reaves, forest operations director at Domain Timber Advisors. “We’re at a new normal,” Reaves said in a phone interview. “We’re going to see this sustained level of housing demand and a new normal for a pricing floor in lumber.”

  

Did you know every home listed for sale with Berkshire Hathaway HomeServices Northwest
Real Estate is eligible to receive no obligation home warranty coverage from American Home
Shield or 2-10 Home Warranty the first six months the home is listed with our company?

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