Factors Impacting Continued Mid-Year Lumber Market Sluggishness

July 2025

Observations from our previous Perspective article earlier this spring really hit the nail on the head in regard to the massive catch 22 that continues to face the housing market as mid-year now approaches. With 40% of homeowners owning their homes outright and the other 60% holding mortgages at an interest rate of under 4%, as of the date of this article’s publishing, the current stagnant interest rate environment – still hovering at between 6% and 7% – remains singularly counter-productive to kickstarting a robust housing market rebound.

Even before the latest round of tariffs added new pressure to the U.S. economy, early signs of weakness were already emerging in key sectors such as automotive and housing. Slowing vehicle sales and a cooling residential construction market pointed to softening demand, undermining two traditionally strong pillars of industrial activity. These declines ripple across related supply chains, including packaging materials like containerboard, which heavily depend on durable goods and retail sales for volume demand.

At the same time, the retail sector has been under prolonged strain, with a wave of store closures and rising inventory levels signaling an ongoing mismatch between supply and consumer demand. This has directly contributed to lower demand for containerboard, as retailers scale back orders and adjust logistics strategies. Meanwhile, in the global pulp market, U.S. exports to China have shown signs of slight weakening in recent months, reflecting shifting trade dynamics and potentially softer Chinese demand. These interconnected factors suggest broader industrial headwinds, even prior to the compounding effects of new tariff measures.

Containerboard

According to Fastmarkets, U.S. containerboard capacity is rapidly tightening, with a 5% reduction—totaling 2.277 million short tons—announced in just five months due to the permanent closure of three mills in the South. Over the past 18 months, 3.077 million tons of capacity have been retired across the Southeast and Southwest. Recent shutdowns include International Paper’s 840,000-ton mill in Louisiana, Smurfit WestRock’s 350,000-ton mill in Texas (closing by July 1), and Georgia-Pacific’s 1.027-million-ton facility in Georgia (closing by August 1). These cuts come amid a sharp decline in demand, with U.S. box shipments falling 2.1% year-over-year in Q1 2025 and dropping 10.9% since 2022—marking the steepest decline since the 2008–2009 Great Recession. This wave of closures also follows the 2023 ramp-up of 2.1 million tons of new recycled containerboard capacity, intensifying the sector’s supply-demand recalibration.

 Regional Housing Trends

Previously hot markets such as Florida, Texas and Arizona are seeing price declines of between 3 to 5% right now, with homes remaining on the market longer and many potential buyers taking a wait and see approach. Much the same is occurring in Pacific Northwest states including Washington State. Prices are somewhat more resilient across much of the Midwest, as supply remains short and transactions limited in comparison to historical norms. Meanwhile, California is facing its worst housing affordability levels in close to two decades and east coast buyers are being faced with low supply and ultra-high prices – especially in luxury and suburban areas.

Nationwide New Home Sales
U.S. sales of new single-family houses in April 2025 were at a seasonally-adjusted annual rate of 743,000, according to estimates released jointly recently by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.9 percent (±13.5 percent)* above the March 2025 rate of 670,000, and is 3.3 percent (±14.7 percent)* above the April 2024 rate of 719,000.

• For Sale Inventory and Months’ Supply
  The seasonally-adjusted estimate of new houses for sale at the end of April 2025 was 504,000. This is 0.6 percent (±2.0 percent)* below the March 2025 estimate of 507,000, and is 8.6 percent (±5.1 percent) above the April 2024 estimate of 464,000.
  This represents a supply of 8.1 months at the current sales rate. The months’ supply is 11.0 percent (±12.3 percent)* below the March 2025 estimate of 9.1 months, and is 5.2 percent (±14.7 percent)* above the April 2024 estimate of 7.7 months.
• Sales Price
  The median sales price of new houses sold in April 2025 was $407,200. This is 0.8 percent (±7.1 percent)* above the March 2025 price of $403,700, and is 2.0 percent (±6.7 percent)* below the April 2024 price of $415,300. The average sales price of new houses sold in April 2025 was $518,400. This is 3.7 percent (±9.7 percent)* above the March 2025 price of $499,700, and is 3.6 percent (±8.4 percent)* above the April 2024 price of $500,600.

Total construction spending during April 2025 was estimated at a seasonally adjusted annual rate of $2,152.4 billion, 0.4 percent (±0.7 percent)* below the revised March estimate of $2,162.0 billion. The April figure is 0.5 percent (±1.2 percent)* below the April 2024 estimate of $2,163.2 billion. During the first four months of this year, construction spending amounted to $660.2 billion, 1.4 percent (±1.0 percent) above the $651.3 billion for the same period in 2024.

Non-Tariff Market Pressure
Canadian lumber producers face significant and continued uncertainty with continued U.S. policy shifts, according to Random Lengths. After providing a moment of relief by signaling that Canadian wood product shipments to the U.S. would be tariff-exempt, the U.S. Department of Commerce issued a preliminary ruling in its annual countervailing duty (CVD) review, proposing sharply increased duties. The new CVD rates include 16.57% for West Fraser, 11.87% for Canfor, and a 14.38% average for all other Canadian exporters.

These new CVD rates come on top of a previously announced preliminary anti-dumping (AD) duty rate of 20.07% for all others, bringing the potential total combined AD/CVD rate to 34.45%—more than double the current 14.40% rate. While this new rate won’t be enforced until the final ruling is issued in about six months, the announcement has already drawn sharp criticism. British Columbia Premier David Eby warned that the increased duties would raise U.S. housing costs, undercutting promises to reduce expenses for American families.

In the current economic and industry climate, if you have borrowers in the lumber market, we urge you to maintain a firm grasp of those businesses and the distinct operational challenges they face. These may include business performance, competitive threats, or forecasting accuracy that could contribute to potential distress in 2025. We advise more frequent intervals of valuation monitoring during this period and welcome the opportunity to assist in those efforts or answer any questions you may have pertaining to exposure within your portfolio. We are here to help.