Hammer and Nail
It’s as easy to understand as a hammer hitting a nail. Lumber consumption in the United States is driven by the construction industry — specifically home building. The US annually produces 35 billion board feet and consumes around 50-60 billion board feet of lumber and 60%-75% of the total goes into residential construction.
Homebuilding is lumber intense. It takes around 14,000-16,000 board feet to frame a 2,000 sq/ft home and another 6,000-11,000 board feet of wood product to sheath and floor the structure. All this adds up to a simple fact that housing demand (and housing starts) fuel the lumber demand and push prices upward. And conversely when housing starts fall, lumber prices tend to lower…most of the time.
Mortgage rates surged in June as the Iranian war and inflation pushed Treasury Bonds yields up, and in turn lifted mortgage rates (mortgage rates are influenced by the bond market). With mortgage rates now averaging around 6.7%, and living in an uncertain economic environment, potential home buyers were reluctant to make major long-term investments. Many analysts feel mortgage rates are temporarily high due to the Iran war and should ease when the geopolitical situation stabilizes. Still, few economists feel that they will fall below 5% in the near future. And the question of ‘affordability’ is underscored when buyers roughly need $120,000 in income to afford a median priced home while the current US median income is only $85,000.
What that means for US lumber and forest product demand now and in the future is, as they say, “complicated”.
A Complicated Outlook for Housing
Understanding the demand forecast for US lumber and forest products is complicated by both domestic economic policies and geo-political forces that are tugging away at the industry from all directions.
And in the US, the primary economic “complication” is nagging and persistent inflation. The Federal Reserve Bank officially targeted 2% as the goal to stay under. However, inflation has been running at over 2% for 65 months (the last year under 2% was the COVID year of 2020 at 1.4%) and currently is running nearly twice that target number. Still, as Kevin Warsh, the Trump Administration’s newly appointed Chair of the Federal Reserve Bank of the US said in the keynote address at the Jackson Hole Economic Symposium on August 28, 2026, “The Fed’s price-stability objective of two percent, as measured by the Personal Consumption Expenditures (PCE) price index, is a firm, fixed target.”
The PCE index is favored by the Federal Open Market Committee (FOMC) over the Consumer Price Index (CPI) as a measuring stick for inflation, as it considers consumer substitution on goods and services when they become too costly and factors in all consumer-related spending not just spending by the consumer itself. And at the moment the PCE is running ahead of the CPI, putting the FOMC on a track to have to make a difficult decision.
With inflation still unchecked the question facing the Federal Reserve Bank’s FOMC at the next meeting (Sept. 15-16) is whether to raise interest rates. President Trump has demanded rate cuts as lower rates reduce the cost of borrowing — a major factor in housing and property purchases. Should the FOMC recommend an interest rate hike, it is likely that mortgage rates will rise and further dampen both the construction sector and home buyers. And while it will slow inflation, it is also likely to slow economic growth.
And in the economic background, there is the unsettling rise of US consumer debt. US consumer debt in the first half of 2026 was $18.8 trillion according to the Federal Reserve Bank of New York, with mortgages by far the largest factor, accounting for $13.1 trillion of the total.
Despite all the headwinds of 2026, analysts are expecting an upswing in 2027 and beyond, as housing industry fundamentals favor growth. As pointed out in a Farm Credit East post by Paul Jannke, of Forest Economic Advisors, “However, long term fundamentals remain strong. The US is entering a period where large population cohorts in their early 30s, prime homebuying years, are driving powerful demographic demand. This follows 15 years of underbuilding, which has created an estimated five-million-unit housing deficit.”
Realignment in the Lumber Trade
As stated above, the US annually produces around 35 million board feet and consumes between 50 million-to-60 million bft of lumber. With much of the 15 million bft-to-25 million bft gap between US production and consumption being filled with imports from Canada and some European sources.
The Canada-US imbroglio (see Julie Gedeon, North American forestry divided for an in-depth analysis of the US-Canada lumber dispute) which ignited a firestorm of tariffs and a rippling of other political and economic repercussions, has roots in the decades old dispute between Canada and the US over the lumber trade. While there is a likelihood of a compromise in the near future, it is just as likely the rift of the US-Canada tariff war will have long-term economic impacts — especially on the lumber business.
But the Canada-US lumber dispute isn’t the only influence reshaping the global trade in lumber and other forest products.
Forest product analysts Håkan Ekström and Glen O’Kelly, in a recent report discussing the market for global softwoods introduced their overview by stating, “Global softwood markets are entering a period of tighter supply. Softwood roundwood supply has remained essentially flat since 2000 despite continued growth in overall roundwood production and is forecast to increase by only about 0.5% annually through 2035.”
This shortage has been exacerbated by events such as the sanctions on Russia, tariff battles with Canada and the European Union, along with a host of other destabilizing geo-political events. And as the analysts comment added, “At the same time, demand for construction timber, packaging and biomass is expected to continue growing faster than supply. The result is a progressively tighter supply-demand balance, with increasing pressure on the availability and real prices of softwood logs.”
All this adds to the immediate pricing and demand confusion of what will go up and what will go down, surrounding lumber and the general forest product industry, which is the hammer and which is the nail?
