Lumber Prices Are Flashing a Warning Sign for the U.S. Economy: Tariffs, Housing Affordability & Market Volatility | NAHB Analysis

Key Takeaways

• Lumber prices have plummeted to near one-year lows, dropping 17.82% in just a month amid oversupply and weak homebuilding demand .

• Tariffs on Canadian lumber have more than doubled from 14.4% to 35.2%, creating supply chain disruptions and inventory backlogs .

• U.S. sawmill production remains surprisingly low at just 64.4% of capacity despite high prices and demand, worsening supply shortages .

• Housing affordability has reached crisis levels, with nearly 100 million U.S. households unable to afford a median-priced home .

• Economic warning signs are emerging as lumber's decline points to broader concerns about construction, manufacturing, and consumer demand .

Recent Lumber Price Trends: What's Happening Right Now

Lumber prices have taken a dramatic fall in recent weeks, dropping to levels we haven't seen in nearly a year. As of September 2025, lumber futures fell below $520 per thousand board feet - that's a 17.82% decline just over the past month . This continues a volatile trend that's been going on since the pandemic craziness of 2021 when prices hit an all-time high of $1,711.20 .

The current price situation reflects a market thats seriously out of balance. We've got too much supply chasing too little demand - basic economics hitting hard. The oversupply problem got worse because many market participants stockpiled lumber ahead of the expected tariff increases on Canadian softwood. When those tariffs indeed jumped from roughly 15% to more than 35%, it created a massive inventory backlog throughout the supply chain . Now everyone's trying to work through that excess wood.

At the same time, demand for new residential construction has cooled significantly. U.S. building permits have slipped to their lowest level since June 2020 . High mortgage rates in the mid-six percent range have made homebuying less affordable, which means fewer new homes being built and less lumber needed . The normal seasonal slowdown in construction activity as we head toward fall is magnifying these demand issues.

What many people don't realize is that despite these recent drops, lumber prices are still 8.97% higher than a year ago . We're still nowhere near pre-pandemic levels, and the volatility continues to make planning difficult for builders and contractors. The market has been especially volatile in recent years due to increased demand, rising tariffs, supply-chain bottlenecks, and insufficient domestic production .

How Tariffs Are Reshaping the North American Lumber Market

The tariff situation on Canadian lumber has dramatically intensified in recent months. In August 2025, the Department of Commerce announced it was more than doubling countervailing duties on Canadian softwood lumber imports from 6.74% to 14.63% . When you couple this with the anti-dumping rate of 20.6%, the total tariffs on Canadian lumber now reach a staggering 35.2% - up from the previous 14.4% .

This is huge because Canada accounts for about 85% of all U.S. softwood lumber imports, representing almost a quarter of U.S. supply . The U.S. simply doesn't produce enough lumber domestically to meet its own needs, so these tariffs directly impact availability and costs for American builders and homebuyers.

The timing of this tariff increase couldn't be worse. The market was already dealing with enough uncertainty, and now we've got this additional trade friction. As Steven Hofer, President and CEO of Western Forest Products Inc., stated: "We face the potential for the combined U.S. Softwood lumber duties rate to more than double in the second half of 2025. It is crucial that all levels of government focus on policies that support the forestry industry and stimulate domestic investment" .

What's frustrating is that these tariffs are supposed to protect and stimulate U.S. lumber production, but that's not happening. U.S. sawmills are operating at just 64.4% of their potential capacity - a number that's actually dropped steadily since 2017 . With limited foreign competition and lumber prices already elevated, many domestic producers have little incentive to ramp up production. It's a classic case of protectionism not achieving its intended results.

The National Association of Home Builders has been advocating for a long-term deal with Canada to reduce tariffs and boost imported lumber, among other policy solutions . But for now, the higher tariffs are creating more uncertainty and cost pressures in an already volatile market.

The Direct Link Between Lumber Prices and Housing Affordability

The connection between lumber prices and housing affordability is direct and undeniable. When lumber costs rise, home prices follow - it's that simple. The NAHB estimates that the average new single-family home uses approximately 15,000 board feet of framing lumber, plus over 2,200 square feet of softwood plywood and more than 6,800 square feet of OSB . That's alot of wood products that go into each home.

Here's how the math works: Changes in softwood lumber prices directly impact the price of a new home. This, along with rising wages for construction workers and higher interest rates, is one of the key reasons the housing market is experiencing declining affordability . The final cost for homebuyers increases by nearly 15% above the builder's cost due to factors like interest on construction loans, brokers' fees, and construction margins .

The affordability crisis has reached alarming proportions. Nearly 100 million U.S. households can't afford a median-priced home, which now averages $460,000 . That's a staggering number of families locked out of homeownership.

What many people don't consider is that homebuilder profitability also plays a role in housing costs. According to analysis from the U.S. Lumber Coalition, homebuilders' profit margins have increased significantly since the COVID-19 pandemic . Their analysis suggests that the increase in homebuilder profitability from trough to peak since 2020 has potentially priced out approximately 4.7 million American households from being able to afford a typical new home .

The problem extends beyond just framing lumber. Products like plywood, OSB, particleboard, fiberboard, shakes and shingles make up a considerable portion of the total materials cost of a new home . So even if framing lumber prices moderate, other wood products can maintain pressure on overall construction costs.

Why U.S. Sawmills Aren't Meeting Domestic Demand

You might think that with high prices and reduced Canadian competition due to tariffs, U.S. sawmills would be ramping up production to meet domestic demand. But that's not what happening. In fact, U.S. sawmills are operating at just 64.4% of their potential capacity - and this utilization rate has actually been dropping steadily since 2017 .

This is perhaps the most frustrating aspect of the current situation for builders. Despite tariffs meant to protect domestic producers, U.S. mills simply aren't stepping up to fill the gap. Capacity has increased somewhat since 2015 but remains lower than peak levels in 2011 . Most of the recent capacity gains took place in 2023, followed by little gain over the course of 2024 .

So why aren't domestic mills producing more? With limited foreign competition and lumber prices already elevated, many producers have little incentive to ramp up . As one analysis put it: "At current pricing levels, producers may see no benefit of increasing output, as it would push prices lower since demand has fallen from the start of the year" . Even when prices were historically high in 2021 and 2022, producers were unable to significantly increase their production during these periods, potentially due to supply chain disruptions .

Employment data tells a similar story. Jobs at sawmills and wood preservation firms fell again in the first quarter of 2025 to 88,533 workers - the third consecutive quarter of declining employment in this industry . This is exactly the opposite of what tariff policies are supposed to achieve.

Environmental regulations, aging forests, and labor constraints also compound the challenge . In British Columbia, a major global timber supplier, wildfires in 2023 damaged approximately 1.4 million hectares of forested land, reducing the availability of harvestable timber and creating long-term supply challenges . Government regulations focused on sustainability also limit output, affecting North American markets .

How Builders Are Navigating lumber Price Volatility

Builders are facing significant challenges in navigating the current lumber price volatility. As Steve Martinez, president of Idaho-based Tradewinds General Contracting, explained: "The unpredictability of lumber prices adds serious complexity to planning and budgeting" . His business builds high-end multifamily homes, where wood frames are critical, accounting for up to 18% of construction costs .

The timing of price changes affects builders asymmetrically. When lumber prices surge, builders feel the pain almost immediately. Wholesalers tend to be "trigger happy" when prices skyrocket . As the cost of their inventory is low relative to cash prices during these periods, they will quote at or near current market prices. The environment is one in which wholesalers are assured to buy low and sell high .

However, when prices are falling, the relief takes much longer to reach builders. Depending on the rate and consistency of price decreases and whether prices have stabilized at the lower level, it may take at least a few weeks to a couple of months for builders to see price relief on the order initially reported in the lumber futures or cash markets .

The length of this "waiting period" for lumber price reductions varies with builder size, supplier size, and the specific builder-supplier relationship. Buying power is positively correlated with the size of a residential construction firm, while the same is typically true for suppliers' selling power . The relative difference in market power between the buyer and seller is crucial in determining how quickly lower prices transmit to a customer.

Some builders are turning to alternative strategies to mitigate these cost uncertainties. These include:

• Panelized construction methods where home components are built off-site in a factory setting with controlled material usage
• Bulk purchasing agreements through building material suppliers that leverage collective buying power
• Price hedging strategies using lumber futures to lock in costs for future projects
• Alternative materials where architecturally appropriate, though options are limited for structural components

The volatility has been particularly challenging for smaller builders who lack the purchasing power and financial resilience of larger operations. This has contributed to industry consolidation as smaller operations struggle to manage the cost uncertainties.

The Housing Affordability Crisis in Numbers

The numbers behind the housing affordability crisis tell a sobering story. According to Zillow's 2024 analysis, the United States has a shortfall of 4.5 million homes, an increase from the 4.3 million deficit reported in 2023 . This massive inventory gap continues to put upward pressure on home prices even as lumber costs fluctuate.

The median price for a new home has reached $460,000 . At this price point, nearly 100 million U.S. households cannot afford a median-priced home . The affordability crisis has reached unprecedented levels, locking out a huge portion of the population from homeownership.

The NAHB's "priced-out" methodology calculates that a $1,000 increase in the median new house price results in 115,593 U.S. households being "priced out" of being able to afford the median new house . This metric helps quantify the impact of various factors on housing affordability.

Several factors have contributed to this pricing increase:

• Material costs: Lumber and other building materials have remained well above pre-pandemic levels
• Labor costs: Construction wages have risen due to worker shortages
• Regulatory costs: Compliance with building codes and regulations adds expenses
• Interest rates: Higher mortgage rates reduce purchasing power
• Builder profits: Analysis suggests increased profitability has contributed to higher prices

The U.S. Lumber Coalition analysis suggests that the increase in homebuilder profitability from trough to peak since 2020 has potentially priced out approximately 4.7 million American households from being able to afford a typical new home . This controversial analysis highlights how multiple factors beyond material costs contribute to the affordability crisis.

The situation creates a vicious cycle: high home prices suppress demand, which eventually reduces construction activity, leading to job losses in construction and related industries. This then further reduces demand for homes, creating a downward spiral that can exacerbate economic softness.

Where Lumber Prices Are Headed Next: 2025 Outlook

Looking ahead to the remainder of 2025, most indicators suggest continued volatility in lumber prices with a generally softening trend. Trading Economics projects lumber to trade at $544.93 per thousand board feet by the end of the quarter and around $585.63 in 12 months' time . This would represent a moderation from current levels but still well above historical averages.

Several factors will influence where prices go from here:

• Tariff policies: The full impact of the increased tariffs on Canadian lumber has yet to work through the system. If maintained, these tariffs will continue to disrupt North American supply chains and keep prices elevated .

• Housing demand: With mortgage rates remaining high and housing affordability at crisis levels, demand for new homes is likely to remain subdued. Building permits have already fallen to their lowest level since June 2020 .

• Inventory adjustment: The market needs to work through the inventory backlog created by pre-tariff stockpiling. This oversupply will continue to pressure prices in the near term .

• Seasonal factors: Construction activity typically slows during fall and winter months, which will reduce demand for lumber in the coming months .

• Economic conditions: Broader economic weakness could further reduce construction activity and demand for lumber products .

Market analysts forecast an 11% rise in housing construction in 2025 as builders address the housing shortage . This growing demand would typically drive lumber prices higher, but it may be offset by the other factors listed above.

The long-term outlook remains clouded by structural issues in the North American lumber industry. U.S. sawmills continue to operate well below capacity, and Canadian producers face increasingly restrictive trade policies . Until these fundamental issues are addressed, the market will likely remain vulnerable to periodic volatility and price spikes.

What Falling Lumber Prices Signal About the broader Economy

Falling lumber prices often serve as an early warning sign for broader economic softness. The recent decline suggests concerns about construction, manufacturing, and consumer demand going forward . As a key input for housing construction, weak lumber demand typically presages slower homebuilding activity and reduced consumer spending on big-ticket items.

The housing market has traditionally been a leading indicator of economic health, and lumber prices serve as a kind of "front-end" indicator for housing activity. When lumber prices fall sharply, it often means builders are scaling back projects due to weakening demand or concerns about future sales. This can create a negative feedback loop throughout the economy:

• Reduced construction activity leads to job losses in construction and related industries
• Fewer new homes being built exacerbates housing shortages while reducing economic activity
• Declining home values reduce household wealth and consumer confidence
• Reduced consumer spending impacts retail, manufacturing, and services sectors

The current lumber price decline coincides with other worrying signs in the housing market. US building permits have slipped to their lowest level since June 2020 . High mortgage rates in the mid-six percent range have made homebuying less affordable, constraining demand . The normal seasonal slowdown in construction is magnifying these demand issues.

However, it's important to note that lumber prices remain 8.97% higher than a year ago . So while the recent decline is significant, prices are still elevated from a longer-term perspective. This suggests that the current downturn may be more of a correction from unsustainable levels rather than a collapse.

The broader economic implications depend on whether this lumber price decline reflects a temporary inventory adjustment or more fundamental weakness in housing demand. If it's primarily driven by the inventory backlog from pre-tariff stockpiling , the impact may be limited to the lumber and construction sectors. But if it reflects deeper issues with housing affordability and consumer confidence, the economic implications could be more widespread.

Frequently Asked Questions

Why have lumber prices been so volatile in recent years?

Lumber prices have been especially volatile largely because of increased demand, rising tariffs, supply-chain bottlenecks and insufficient domestic production . The pandemic created a perfect storm of reduced production, a housing boom, and supply chain disruption . More recently, speculative stockpiling ahead of tariff increases and weakening homebuilding demand have contributed to price swings .

How much have tariffs on Canadian lumber increased?

Tariffs on Canadian lumber have more than doubled recently. The Department of Commerce increased countervailing duties on Canadian softwood lumber imports from 6.74% to 14.63% in August 2025. Coupled with the anti-dumping rate of 20.6%, total tariffs on Canadian lumber now reach 35.2% - up from the previous 14.4% .

Why aren't U.S. sawmills producing more lumber despite high prices?

U.S. sawmills are operating at just 64.4% of their potential capacity, and this rate has actually dropped steadily since 2017 . With limited foreign competition and lumber prices already elevated, many domestic producers have little incentive to ramp up production . Even when prices were historically high in 2021-2022, producers were unable to significantly increase production, potentially due to supply chain disruptions .

How do lumber prices affect housing affordability?

The average new single-family home uses roughly 15,000 board feet of framing lumber plus significant amounts of other wood products . Price changes for these materials directly impact home construction costs. The NAHB estimates that for items used during construction, the final home price increases by nearly 15% above the builder's cost due to various factors . Nearly 100 million U.S. households currently can't afford a median-priced home .

When will builders see relief from recent lumber price decreases?

Builders typically see price relief more slowly when prices are falling than when they're rising. Depending on the rate and consistency of price decreases, it may take at least a few weeks to a couple of months for builders to see price relief on the order initially reported in lumber markets . The timing varies with builder size, supplier size, and their specific relationship .