Lumber’s Quiet Crash: Why Timber Markets Are Falling Even as Builders Pay More

CME Lumber Futures (LBR) have tumbled 10.4%. But if tariffs are up and supply still tight, why is lumber sagging like a forgotten log on the forest floor?

When Demand Becomes Sawdust

It all begins with the sawblade’s first bite: new U.S. housing starts. In August 2025, building permits fell to 1.31 million—down 11% year-on-year and the lowest since May 2020. Housing starts, the engine of lumber demand, dropped 8.5% month-over-month to just 1.307 million. Sentiment among homebuilders, according to the NAHB, sits at a 13-year low. For every $1,000 increase in new-home cost, over 115,000 households are priced out. The once-voracious appetite for framing lumber is, for now, on a strict diet.

Tariffs: All Bark, Little Bite?

On paper, the U.S. government has thrown logs on the fire—raising countervailing and anti-dumping duties on Canadian softwood lumber to a combined 35.19% in August. A move meant to protect domestic producers and ratchet up prices. But reality has a splinter: U.S. builders can’t easily substitute away from Canadian SPF (spruce-pine-fir), so the cost is simply passed along, not boosting futures. Instead, mill closures in Canada (down nearly 10% in 2024) have choked off exports, while the U.S. South’s Southern Yellow Pine (SYP) is quietly filling the gap. SYP prices rose 3% in April alone and now command a premium over Western SPF, but the overall supply chain is adapting rather than breaking.

Mortgage Rates: The Invisible Axe

Money is more expensive now than at any time since the early 2000s. Average 30-year fixed mortgage rates are hovering near 6.8%—still double their 2021 lows. Home affordability has become a mirage: the income needed to afford the median new home has jumped 113% since 2021. The refinancing pipeline is blocked, with 60% of U.S. mortgages locked below 4%. Demand for new builds, and therefore lumber, remains stuck in the mud until rates truly fall.

Supply Chains: Tighter, But Not Broken

Canadian sawmill capacity shrank by 17.7% in British Columbia through mid-2025, but the U.S. South has picked up the slack with all-time record SYP production. North American sawmill utilization hovers around 65%, below its historical average. The “dual squeeze” of tariffs and closures was expected to send lumber prices flying—but instead, the market is digesting the shock. Futures contracts now trade around $470 per 1,000 board feet, down from a pandemic-era high above $1,300 but well above the $400 pre-COVID range.

Policy Chainsaws and the Federal Forest Gambit

In March, President Trump’s executive order targeted a 25% increase in U.S. federal timber harvests, paired with a $200 million USDA push to boost domestic log supply. The aim: break dependence on Canadian imports and tame costs. But new timber doesn’t reach sawmills overnight—staff shortages, logistical bottlenecks, and environmental constraints mean any meaningful supply boost is still months or years away. Meanwhile, the threat of even higher tariffs (pending Section 232 review) keeps market participants nervous but not bullish.

The Paradox of Expensive Scarcity

Despite all this—tariffs, supply shocks, policy churn—the lumber market is wrestling with a paradox. Builders face higher costs, but futures are falling. Why? Because the market is forward-looking: with housing starts soft, mortgage rates stubborn, and supply chains slowly rerouting, expectations for a near-term demand surge have evaporated. The result is a slow, steady grind lower, not a spectacular crash.

A Market That Refuses to Burn Hot

Lumber’s 10.4% three-month slide is less a collapse than a recalibration. Until housing starts recover, mortgage rates ease, or a trade détente arrives, futures are likely to remain subdued—even as the industry itself stays in the policy spotlight. For traders, builders, and investors, the message is clear: this is a market shaped by a thousand cuts, not one decisive blow.