That's the idea. The yarn fulls (shrinks) after it's woven into cloth. Yarns are stretched while held under tension for weaving so washing them with an eye towards restoring the fibers to their natural state and elasticity becomes a moot point as all that washing the yarn has accomplished for the handle of it comes undone by the tension needed for weaving. Elasticity is not a desirable thing in weaving yarns, especially not for warp yarns as it makes even warp tension difficult to achieve and maintain. Woven cloth is never considered "finished" until it is off loom, inspected for errors, had the errors corrected, and been wet finished.
The other thing is that if the yarn is finished before weaving, then the woven cloth will not full up and finish as nicely as it will if woven with unfinished yarns.
There is a book (I don't have it) called "Magic In The Water" by Laura Fry (self-published, limited edition available from laurafry.com)which discusses wet finishing of woven textiles.