Housing Data Remains Strong, But Lumber Prices Suffer

As the U.S. economy finally picks up its pace, many investors are returning to the corner of the market that was one of the primary sources of the 2008 financial crisis: housing. Across the board, housing stats have been on the rise in recent years, including home prices, housing starts, building permits and construction. As such, interest in the raw materials involved in housing have also benefited from the uptrend, particularly lumber [for more commodity news and analysis subscribe to our free newsletter].

In 2012 alone, lumber futures shot up over 38%, leading many to believe 2013 would be a promising year for the commodity. Recent price movements, however, have raised some red flags for the commodity as well as the housing industry as a whole.

The Lowdown on LumberLumber

Since the beginning of 2013, new housing starts have continued their upward trend; just in March, the annualized number of new residential buildings that began construction was 0.92 million (see chart below). Another indicator of the housing industry’s health is building permits, which have also been on the rise, though the last recording for March came in slightly below expectations. Just recently, data for U.S. homebuilders confidence showed an improvement for the fist time in five months.

From a more macro perspective, construction spending has been less consistent this year; for April, spending fell 1.7%, though in March the metric rose 1.2%.

Housing Starts

And though housing data has been relatively encouraging so far in 2013, lumber – one of the key materials used in the industry – has not fared as well. Year-to-date, the commodity has fallen over 15% [see 5 Commodity Trading Mistakes You Could Be Making].

Lumber (July 2013)

Some analysts have cited slowing economic growth in China as a main concern for lumber, but many note that 2012′s lumber rally was more of a predictive measure, which ultimately foretold what we are seeing now with the current housing rebound. And while lumber prices continue to struggle, hombuilding and construction stocks have flourished – a positive sign for the overall industry.

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Disclosure: No positions at time of writing

About Daniela Pylypczak

Daniela Pylypczak-Wasylyszyn is a regular contributor to CommodityHQ.com, where she primarily focuses on commodity producers equities. She is also an analyst for ETFdb.com, where she contributes articles and analysis each week. Since joining the team in 2011, Daniela has quickly grown to be one of the most widely-followed authors in the industry. Her articles are syndicated in a number of online publications, including Financial Advisor Magazine, Fidelity.com, and Yahoo! Finance. Daniela is also a contributor for TraderHQ.com and Dividend.com. Daniela graduated from DePaul University with a bachelor’s degree in finance and economics.
This entry was posted in Actionable Ideas, Agriculture, Asset Allocation, Commodity Futures, Lumber, Timber and tagged . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

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