Will the US Government shut down slow the lumber market?

The US housing market, which has a significant effect on framing lumber prices, showed a modest increase in August from July.    The lumber pricing and housing starts have a very similar 5 month rolling average with both trending slightly downward.

Many are hopeful that the housing trend starts its upward surge again for the last quarter of 2013.   As one can see from the graph below, the housing starts peaked in March and dropped in April where the trend has leveled out.

Many economists believe that new housing construction should continue to grow long term as housing prices are up and inventory is down; both are good trends for the housing construction industry.  The 30 year fixed mortgage rate has declined slightly in September.   It jumped from 3.5 % to 4.5% from March to June which may be one factor in the downward housing trend.

Data from census.gov and NAHB

There are some potential bumps in road for new housing construction starting with this week’s government shut down.   FHA loans could be experiencing delays as there is only a skeleton crew reviewing loan applications and checking credit history using social security numbers.    A short term shut down should not significantly impact housing, but a protracted shutdown could delay loan approvals enough to slow new construction.    A much bigger obstacle is the pending debt ceiling issue that will rear its ugly head in the middle of October.   Failure to raise the debt ceiling limit could potentially cause interest rates to increase enough to take a significant number of potential home buyers out of the market.    Not only would interest rates potentially increase but the economy could fall back into a recession.    A failure to raise the debt ceiling could result in the US defaulting on some of its loans.

Latest polls indicate an increasing level of frustration over congresses inability to resolve these issues.    This will be the third time that the debt ceiling will be reached in President Obama’s Presidential term.   Each time the Republican controlled congress has tried to use this as leverage to get longer term debt reduction programs in place.  The last such ceiling deadline resulted a sequester of some government spending.    While many complained that this sequester hurt the economy, it did indeed reduce the deficit along with an increase in tax revenue.

Many Republicans, while not yet breaking ranks, are vocally against shutting down the government.   Perhaps they are feeling the heat from their constituents.    If some Republicans do break rank on the Obamacare battle, one may speculate that there may be less fight over raising the debt ceiling.