Falling lumber prices suggest there is trouble ahead for the struggling U.S. housing market, as builders scale back new construction because of a recent inventory glut and growing economic uncertainty.
Lumber futures—contracts to buy and sell a specific quantity of lumber cut into beams and planks at a predetermined price on a future date—fell below $530 per thousand board feet this month, according to Trading Economics, after reaching a three-year high in August. On Monday, it ended at $526.50—the lowest level in almost a year.
A decline in lumber prices has previously served as a warning sign that the U.S. housing market was heading toward a slowdown in construction. For homebuyers finally seeing the market shifting in their favor in many parts of the country, this could mean losing their advantage over sellers once again.
Why Are Lumber Prices Falling?
There are two main reasons lumber prices are now falling. One is that the Trump administration’s back-and-forth on tariffs on imported lumber over the past few months threw the construction market into chaos, leading builders to make difficult choices.
Earlier this year, when the administration announced that it would impose higher levies on lumber and other construction materials coming from Canada and other key trade partners, lumber prices shot up. Shortly after, when Trump took a step back on these additional levies, they began to fall, only to climb up again when, in May, buyers began stockpiling lumber ahead of the government’s deadline to introduce higher duties.
The Trump administration’s antidumping and countervailing duties are now about 35 percent for most Canadian lumber producers, up from the previous 15 percent. While they might have saved some money by buying imported lumber ahead of higher tariffs, U.S. homebuilders failed to take into consideration falling demand for new homes—any homes, in fact—across the country. This is the second reason lumber prices are falling.
While there is still a massive gap between the number of homes for sale in the U.S. housing market and that which would be needed to give everyone who wants one a home, American buyers have withdrawn in recent months because of affordability challenges.
There were over 2.1 million homes for sale on the U.S. housing market in July, according to Redfin, up 14.1 percent from a year earlier. Sales, however, were down 1.4 percent year over year in the same month, at 479,027, as buyers still faced sky-high home prices and mortgage rates around 6.5 percent.
In short, builders now have more stocks of lumber than they have demand for new homes. So they are unlikely to buy more anytime soon.
“Lumber prices have been soft due to weak demand from the residential construction industry. Single-family home building is down about 4 percent for the first half of 2025,” Robert Dietz, the chief economist at the National Association of Home Builders (NAHB), told Newsweek.
“Many in the commodities market had been buying lumber futures in anticipation of additional tariffs which did not come at the same time that new home sales have faltered in 2025, and builders are buying up less lumber,” Realtor.com senior economist Joel Berner told Newsweek.
“Construction activity has been muted in 2025, and without a major increase to new home demand, it will likely stay that way in the near term. Builders compete with existing home inventory, which has been steadily increasing in the past several years,” he said.
What Do Lower Lumber Prices Mean for the U.S. Housing Market?
The recent rise in for-sale inventory across the U.S., mixed with dwindling demand, is forcing sellers to slash prices and offer different incentives to attract cautious buyers.
This is especially true for developers. Last month, according to data by NAHB, 37 percent of builders were cutting prices by an average of 5 percent, while 66 percent were using other incentives to off-load their newly built homes.
“With depressed new homebuying activity, supply is outpacing demand, and builders will likely cut back on delivering new homes to the market,” Berner said. “For buyers, this means that now may be their best opportunity to snap up the ample new home inventory—the highest level since 2007—before builders slow down and competition from other buyers increases as mortgage rates fall.”
But developers are clearly adjusting their expectations to these new market conditions. Residential building permits plunged to a seasonally adjusted annual rate of about 1.4 million units in July, the lowest level since June 2020. In the same month, total U.S. construction spending was down 3.4 percent from the record set in May 2024.
A slowdown in construction, as has been historically suggested by lower lumber prices, is already happening.
“2025 will be a down year for single-family home building. The NAHB/Wells Fargo Housing Market Index, a measure of builder sentiment, is at a weak reading of 32—levels below 50 indicate construction weakness,” Dietz said. “And single-family permitting, an indicator of future construction activity, is down almost 6 percent for the first half of the year.”
A reduced housing supply, Dietz said, would hurt housing affordability by limiting options for homebuyers. “With respect to lumber prices, the future path of pricing depends on trade policy and a possible rebound in demand for lumber from construction firms as interest rates trend lower,” he said.
How Are Lumber Producers and Builders Reacting?
Lumber producers are trying to cut their losses and ease the current pileup of wood by shrinking production.
British Columbia-based Interfor, the third-largest lumber producer in North America, said last week that it would reduce output by about 145 million board feet between now and the end of the year. To do so, it plans to reduce hours, change shifts, and lengthen holiday breaks and maintenance shutdowns in both the U.S. and Canada.
Domtar, another producer, announced earlier this month that it would temporarily shut down its sawmill in Maniwaki, Quebec, in October.
These measures could stabilize lumber prices, while a potential fall in mortgage rates could spur a rise in demand and new construction across the country. After a couple of concerning reports showing that job growth is slowing down and Americans are having a harder time finding opportunities, the Federal Reserve is widely expected to cut rates this month.
Though the central bank does not set mortgage rates, these usually move in tandem with the yield on the 10-year Treasurys, which work as a barometer for the U.S. economy.
While NAHB is forecasting a decline for single-family home building in 2025, it expects a gain in 2026 as mortgage rates move closer to 6 percent, according to Dietz. “This will price in prospective buyers to the market and increase opportunities for builders to increase construction activity,” he said.
Berner said, “Builders are quite good at forecasting buyer demand, so lower mortgage rates may signal that buyer activity will increase and they need to up their production to match, which will increase demand for lumber and bump prices back up.”
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