Prices for coarse wool have bounced back, rising 11 per cent higher in the past three months.
Compared to a year ago, prices are 10 per cent higher, according to the latest ASB Farmshed Economics report.
ASB rural economist Nathan Penny said one of the reasons for the increase was the lower numbers of sheep since back-to-back droughts in Australia and the 2012-13 drought in New Zealand.
"There's less wool around which is driving prices up. It's similar to sheepmeat prices which have also risen recently because of a drop in sheep numbers," Penny said.
Another driver for higher prices could be the housing industry in the United States and Australia, and the demand for carpets.
"In Australia, strong population growth means a shortage of housing.
"This along with low interest rates should see housing construction continue to pick up and with it demand for carpets.
In the US, the housing market continues to recover, which should be supportive of coarse wool prices as well," Penny said.
Colin McKenzie, managing director of flooring company Cavalier Corporation, agreed both were factors in the wool price rise.
"There is a shortage of supply. Numerous wool auctions have been cancelled and there's debate about the numbers of sheep in the South Island, following dairy conversions," McKenzie said.
Carpet subsidiary Cavalier Bremworth was enjoying strong sales in the mid to upper end of the market in New Zealand, Australia and the US.
Its Christchurch dealers were up "significantly" year on year and some had very long lead times for installation, he said.
Australia faced a shortage of 60,000 dwellings, with new immigrants arriving at the rate of 200,000 a year.
"Even though the Aussie economy is not flash, the building sector is strong. The commercial side of the market might be flat but residential dwellings are reasonably strong - one report predicted a 17 per cent year-on-year increase.
"I wouldn't go that far but it should be at least double digit growth," McKenzie said.