Lumber prices swing as tariff fears roil markets

Tariff-influenced lumber price volatility this year has markets trying to read the tea leaves to determine what the implications might be for housing and the economy at large. 

Since reaching a three-year high in early August, lumber futures declined by 25% to trade at approximately $525 this week, data from the Chicago Mercantile Exchange showed. Futures historically have foreshadowed oncoming inflation or economic slowing, particularly this decade.

Tariff policy is playing a major role in lumber price fluctuations throughout 2025, according to a story published this week in the Wall Street Journal. A Trump administration threat to raise tariffs on all Canadian imports sent demand for wood products surging early this year. With implementation delayed, lumber futures subsequently pulled back only to head higher again as President Trump reproposed policies during the summer. 

The anticipation of increased lumber costs from tariffs led some businesses to frontload purchases, resulting in higher prices followed by a market glut, as buyers made buying decisions without fully taking into consideration demand from customers, the article said.

The current drop in prices could be worse, though. With the current slowdown in demand expected to continue through the rest of the year, though, the decisions of some sawmill operators to curtail production is limiting the degree of declines. 

"Tariffs distort prices, creating oversupply in some regions and shortages in others," wrote Andrew Hecht, a former commodities trader and author at Barchart, in mid August.  

Rising wood-product prices during the Covid-19 pandemic preceded a rapid jump in inflation earlier this decade, while their decline coincided with subsequent slowing economic activity, leading investors to keep an eye on recent movements. 

How housing activity is limiting lumber demand

Contributing to oversupply and soft lumber prices is decreased homebuilding activity, with residential construction starts and permits showing notable pullbacks this summer. The volume of residential building permits, often a bellwether for future construction, issued in July fell to an annual seasonally adjusted rate of 1.4 million units, the smallest number in over 25 years. 

Construction spending also fell by 3.4% in July from a record set over a year earlier.

At the same time, price-sensitive home buyers are holding back housing sales, as consumers continue to encounter affordability pressures characterized by rising home prices compounded by stubbornly sticky mortgage rates.  

Typical seasonal trends also means lumber prices are unlikely to see any quick return to the upside in the near term as winter approaches and building traditionally slows. Recent mortgage rate activity and price drops in some parts of the country provides some green shoots for housing construction, though.