As the US 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.
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 Lumber
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 US 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%.
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%.
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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Editor's note: This article by Daniela Pylypczak was originally published on Commodity HQ.
No positions in stocks mentioned.