LUMBER PRICES FORECASTING ANOTHER HOUSING DOWNTURN
Much of the recent stock market optimism has been based on the supposed bottoming of real estate prices. As regular readers know, I am more skeptical than most of the recent housing stability. Every year we experience strong seasonal trends in housing that give investors hope during the spring and summer buying seasons. The price of lumber is an excellent example of such seasonality. As you can see in the following chart lumber prices have spiked in each of the last three springs/summers despite the worst housing environment in the post-war era.
Despite being 30% off the lows lumber prices have fallen 15% from recent highs as seasonal strength in housing begins to wane. August/September have been vital turning points in housing and lumber prices in each of the last few years. If recent price action is any signal we could be on the verge of another bout of weakness in the housing market and that would surely dampen the v-shaped recovery theory.
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Thanks guys. You can’t get the straight story from Yahoo or CNBC. I try to be a bit more realistic….
Well, historically lumber has a very strong seasonal correlation in both up and down housing markets (I’m a logger and keep pretty close tabs). Not sure falling lumber prices here say too much other than they went up early and then back down late, per usual.
The largest late summer/fall drop I could see in the last 10 years occured in 2004 which did not exactly signal an impending housing drop, as housing strts didn’t peak until the summer of 2006 nearly two years later.
Here’s a chart from mid 2000-2009.
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