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Rapidly Rising Mortgage Rates Finally Impact the Price of Lumber, Durable Goods Are Next

Lumber has peaked this cycle as mortgage rates soar over five percent.
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Lumber futures courtesy of the Nasdaq, annotations by Mish.

Lumber futures courtesy of the Nasdaq, annotations by Mish.

Rising mortgage rates and  slowdown in housing make it pretty clear we've seen the peak in lumber prices for this cycle. 

I expect to see lumber prices return to their historical norms in the $250-$400 range.

The following chart helps explain. 

30-Year mortgage Rates 

Mortgage rates courtesy of Mortgage News Daily

Mortgage rates courtesy of Mortgage News Daily

Rising mortgage rates will cool demand for housing and everything housing related. 

Demand for lumber, appliances, carpet, landscaping, kitchen remodeling, cabinets, etc. will all drop steeply.

The falling stock market will also have a big impact on demands for goods, including autos.

Food, Rent, and Energy Prices are Totally Outside the Fed's Control

How fast CPI falls will mainly depend on rent, gasoline, and the price of food. However, Food, Rent, and Energy Prices are Totally Outside the Fed's Control

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Rent and Owner's Equivalent Rent (OER) are 31% of the CPI. By slowing housing, the Fed will also slow construction of apartments and condos. That peaks for lingering rent inflation.

Also, the BLS is way behind the curve in factoring in rent price hikes that have already happened.

On the other side of the inflation ledger, there is a huge supply of housing under construction.

Competing forces make it difficult to say if year-over-year inflation as measured by the CPI has peaked. If not, I think we are close.

Regardless, it will not be pleasant cycle for the Fed because de-globalization and the war in Ukraine are huge inflationary winds blowing smack in the Fed's face.

 This post originated at MishTalk.Com.

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