THE PRAGMATIC CAPITALIST » » ARE LUMBER PRICES FORECASTING A MARKET DOWNTURN?

ARE LUMBER PRICES FORECASTING A MARKET DOWNTURN?

8 September 2009 by TPC 6 Comments

As we’ve often mentioned, seasonality in housing remains one of the primary reason why the real estate market appears to be bottoming out. Lumber prices are up 20%+ since the S&P 500 bottomed in March, but still down nearly 50% from their peaks. As you can see in the following chart lumber prices have coincided with seasonal strength and weakness in the first and second halves of each of the last 3 years. Prices are down almost 20% in the last 6 weeks as seasonality again begins to impose its will on the housing market. Are lumber prices foreshadowing the next downturn in the real estate market?

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6 Comments »

PLT said:

Here’s another green shoot:

http://www.marketwatch.com/story/hiring-plans-drop-to-record-low-manpower-2009-09-08?siteid=rss&rss=1

We’ll be at 1200 any day now!

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# 8 September 2009 at 6:00 AM

Rob said:

Seasonality is not the only factor in the “temporary” housing bottom. There are three other big factors:

1. Stimulus
2. Loan modification programs
3. Fear of rising mortgage rates

The stimulus ($8K for first time home buyers and $10K in California on any new home) have artificially stimulated demand, as did cash for clunkers for auto sales. The big questions are: will demand collapse once the programs end? Will the government extend or increase the programs if demand does collapse. (There had been talk of $15K for home buyers, first-time or not). There has been a rush to buy before the programs run out. That rush stabilized home prices so others rushed in to buy because they saw home prices stop falling.

The workout programs have had a large effect. Not all that many loans are being successfully modified, but the review process is slowing down the foreclosure process.

Yet another factor is fear of rising mortgage rates. The same fear of inflaton that is driving up the price of gold, silver and to some degree stocks has put somewhat of a floor on housing prices and increased demand.

The big question is whether the stimulus (home, auto, low interest rates) will create a self perpetuating demand cycle or whether the demand is artificially induced and will fall off once the stimulus ends.

Regarding the markets, I think that the weak dollar is playing a significant role in the strength of most asset and commodity markets. Another major crisis comes along and the dollar and yen will strengthen and asset prices will fall. The weak housing market may stop the markets advance, but the weak dollar may stop any decline in the market.

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# 8 September 2009 at 7:21 AM

Paul said:

Hi Rob, the current crisis is a sooner than expected USD collapse with trillions of printed/unprinted(Fed guarantees) dollars. The financial rumor last week could be a catalyst. China is issuing bonds soon and only good news USD being so bearish. A reflating market with a debasing currency feels good for now. Has the gold market move a tell of what could be coming to USD? Curious what will happen to equities if USD collapse is unfloding?

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# 8 September 2009 at 9:11 AM

percolator said:

Don’t forgot the FHA trying to start another bubble.

From the Big Picture:

http://www.ritholtz.com/blog/2009/09/yet-another-bailout-housings-hair-of-the-dog/

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# 8 September 2009 at 11:53 AM

Rob said:

Paul,

Curiously the bond market is not reacting strongly to the declining dollar. Who has more to lose that holders of USD bonds which are now largely in foreign hands?