With potential tariffs on top of increased duties, the lumber market may face major challenges in 2026
A recent unexpected drop in Canadian lumber prices and futures market, combined with declining mortgage rates, has potentially provided an opportunity for the struggling new home construction market to pick back up.
So far, that opportunity hasn’t turned into increased building permits, housing starts, or builder confidence. Furthermore, one expert is concerned that this window may not remain open for very long.
Russ Taylor (pictured top), a wood market expert and analyst, said that despite what he called an “absolutely crazy” drop in lumber prices, trouble could be on the horizon.
The issue at hand is an ongoing Section 232 investigation by the White House. The Trump administration is investigating whether imports of wood products present a security threat to the US. Ongoing since March 1, some expect a resolution soon. It could mean new tariffs added to recently increased duties on Canadian lumber.
“The one thing we're still waiting for is this Section 232 investigation for wood and timber and wood derivatives for all countries,” Taylor told Mortgage Professional America. “That's got a few people spooked. If they put tariffs on top of duties, this makes everything even worse for the lumber guys.”
Existing lumber tariffs
While builder confidence remained low, there is some hope that lower interest rates might help things pick up the rest of the year.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) remained at 32 in September. Still, the survey indicated some optimism from builders that things might improve in the short term due to lower rates.
“The 30-year fixed rate mortgage average is down 23 basis points over the past four weeks to 6.35%, per Freddie Mac,” said Robert Dietz, NAHB chief economist. “This is the lowest level since mid-October of last year and a positive sign for future housing demand.”
However, additional tariffs could pour cold water on some of that optimism. Some countries are already facing existing tariffs on lumber, and depending on the outcome of the Section 232 investigation, they could be looking at even greater tariffs sooner.
“We just don't know what's going to happen,” Taylor said. “Brazil has a 50% tariff on its lumber already, because the US hasn’t settled with Brazil yet. Europe has a 15% tariff, but lumber has been excluded because of the 232 investigation. They think it's going to be 15%, so that means they'll need higher prices to come into the US market. All these things are kind of what's next in terms of the unknowns, and we'll have to wait and see.”
Unknowns heading into 2026
The other weighing factor on the lumber market, and therefore the home construction market, is what is going to happen with the US economy heading into 2026. As the Fed lowers rates, will that increase inflation? Will the job market struggles continue? Taylor notes that all of these, in addition to potentially new tariffs, leave analysts with more questions than answers.
“We're probably six months out from seeing very high prices again, as Mills start to build order files and buyers come back to the market,” Taylor said. “We'll probably see a much stronger market and with lower interest rates, hopefully by the new year. But there are so many unknowns. Where is the US economy heading? What’s going to happen with higher inflation?
“A lot of economists are talking about that could stall or squeeze the economy, maybe not into recession, but start to stall the economy, and that still means consumer confidence. People aren't going to be spending as much, and that may slow down the economy as well, and put a drag on everything.”
Fed cuts have stirred hopes for lower mortgage rates, but Melissa Cohn of William Raveis Mortgage warns that “too much noise” makes forecasts uncertain. From tariffs to politics, unexpected shifts keep the outlook unclear.
— Mortgage Professional America Magazine (@MPAMagazineUS) September 18, 2025
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Recent duties on Canadian softwood lumber had everyone expecting a surge in prices to help companies try to recover some of the losses. With prices plummeting instead, smaller mills could be in trouble. If you add additional tariffs to that equation, it could be a major issue heading into 2026.
But for now, the lower prices will likely continue because mills won’t want to cut back production so much that they start losing clients or employees, Taylor said.
“It can last a long time, because mills don't want to lose their employees,” he said. “They don't want to lose their contractors, and they don't want to lose their customers. So they keep running, and they take some curtailments to ease it off. But if you don't take the hard medicine fast enough, this thing drags on. I guess it’s going to be a good time for buying lumber.”
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