US Housing Starts Will Decide How Long Lumber Rally Lasts – Barron’s

Lumber prices have made quite a comeback this year, climbing by +25% in January and nearly erasing the decline suffered in 2018, as the market gets a boost in demand ahead of the spring building season, said Barron’s Friday. Looking ahead, however, analysts urge caution.

The lumber market looks overbought and shares some similarities with last year, when prices rose to an all-time high and then dropped. Lumber was in short supply early that year, in part due to US duties on imports of lumber from Canada that led to tighter supplies. – Barron’s

A “historic collapse in pricing” followed, as actual demand following the initial spring purchases “didn’t materialize to keep pace with an increase in production”. US housing starts were at a seasonally adjusted annual 1.256 million rate in November— +3.2% higher than a downwardly revised October figure, but down -3.6% from a year earlier.

Madison’s is pleased to see others catching on to our recent notice of an extremely powerful relationship between lumber prices and US real estate data …. except Madison’s publishes construction framing softwood lumber dimension prices every week as-it-happens, but home building and home sales data comes out 2 or 3 months afterward:

Aside from all of that is uncertainty surrounding China’s lumber demand, as talks between the US and China to reach a trade deal continue. Lumber futures settled at US$439.50 per 1,000 board feet on Wednesday. They rose +25% in January and, as of Wednesday, trade about +30% higher year to date. The SPDR S&P Homebuilders exchange-traded fund (ticker: XHB) has seen a more modest gain of +13% for the year so far.

US house prices, meanwhile, rose in November, up +0.4% from the previous month, according to the Federal Housing Finance Agency (FHFA) seasonally adjusted monthly House Price Index (HPI). The October report was revised to reflect a +0.4% increase. FULL STORY HERE: