That predictive energy is why economists and analysts alike are as soon as once more paying shut consideration to lumber: After nosediving to $383 per thousand board toes by the top of 2022, the lumber futures worth has since jumped 19% to $454 as of Wednesday.

Does this slight rebound in lumber costs—which floated between $350 to $550 within the years main as much as the pandemic—simply imply that lumber is nearing its backside? Or does it sign some broader rebound within the slumped U.S. housing market?

To higher perceive the place lumber and the U.S. housing market may head subsequent, Fortune reached out to Dustin Jalbert, senior economist of wooden merchandise at Fastmarkets.

Listed below are Jalbert’s 5 daring predictions for the place the lumber market heads subsequent.

1. U.S. housing begins have additional to fall

Jalbert expects U.S. housing begins to drop by double-digits this 12 months. His reasoning? New dwelling gross sales within the U.S. have been off by 20-30% for the reason that starting of final 12 months due to “plummeting dwelling affordability,” triggered by excessive mortgage charges and excessive dwelling costs. Cooling demand coupled with a historic variety of properties presently underneath development, which creates a circulation of “shadow” stock, worsens the oversupply and triggers a pullback in housing begins. 

Though it’s extensively forecasted that housing begins will drop this 12 months, by how a lot precisely varies. Jalbert expects housing begins to drop 13%, which he says leans in direction of the optimistic facet. The outlook is a little more gloomy for single-family properties, which he predicts will fall by 16% in 2023 as mortgage charges proceed to hover round 6%. Nevertheless, for multifamily begins, Jalbert predicts it’ll drop 7% this 12 months. 

The distinction between the 2 outlooks relies upon robust condominium demand that’s anticipated to tug multifamily begins ahead. However provide chain disruptions, labor shortages, hire development, and difficult monetary circumstances will put the identical downward stress on multifamily begins as single-family begins. 

2. Lumber demand will drop once more

U.S. lumber consumption will fall someplace between 4% and 5% in 2023, Jalbert predicts. He estimates that in 2022, lumber consumption fell by 1.6% because of “sudden weakening in new residential development exercise within the second half of the 12 months and a serious correction in do-it-yourself (DIY) lumber demand.”

Transferring ahead, the restore and reworking market will average among the demand losses, whereas skilled reworking is prone to weaken with the decline in nationwide dwelling costs.

A 4% to five% decline in lumber consumption (or 2.2 billion board toes) could be the biggest decline in a single 12 months since 2009—a 12 months that noticed a 8 billion board toes decline.

Whereas this predicted drop would not be catastrophic, it might be difficult for constructing materials retailers, wholesalers, and mill operators.

3. Document volatility in lumber costs since 2020 is over

The volatility in lumber costs that’s rocked the market since 2020 is over as a result of anticipated decline in demand, Jalbert suggests. And though lean stock can drive lumber costs up, it may possibly’t achieve this with out demand—so the document volatility seen for the reason that spring of 2020 “seems to now be within the rearview mirror.”

4. There’s extra British Columbia sawmill closures on the horizon

Jalbert anticipates that “a considerable portion of trade capability is about to shut,” due to weak market circumstances and constraints to long-term fiber availability. He expects these indefinite or everlasting closures to take impact within the Canadian province after a number of rounds of non permanent sawmill curtailments, coupled with weakening demand and decrease lumber costs. 

“This can be a key issue that helps tighten the market, notably within the second half of 2023 after we anticipate demand will start reversing course and the majority of the manufacturing cuts will start to be felt,” Jalbert wrote. 

In complete, he expects British Columbia sawmill closures to wipe out manufacturing capability of 1.5 billion board toes.

5. Inflation— and mortgage charges—will drop considerably in 2023

Inflation will fall considerably within the second half of this 12 months, edging nearer to the Federal Reserve’s 2% goal, Jalbert predicts. With that, the Fed might select to cease elevating rates of interest and in flip mortgage charges might drop, thus revitalizing dwelling shopping for exercise. 

That, in fact, could be welcomed by each homebuilders and lumber producers.

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