Build-to-Rent and Here Comes the Wood

Build-To-Rent: Overlooked Obvious

Not to be sacrilegious, but things in the lumber market are feeling apocalyptic. My primary concerns about the lumber and OSB market right now are two-fold. One, blatant disregard and unnatural comfort with prices.

One of our members asked if he should cover September OSB @$1600 delivered. He has a 4-month supply. My answer was a definitive NO! In fact, I recommended he sell one month’s inventory at $1900 for quick shipment. No one needs to buy inventory to cover 5 month needs at today’s price and shipment. I’ll wager a year’s membership fee that he can buy that same shipment offered today at $1600, for less than $1200 by the first week of August: one month sooner than offered and $400 less.

Concern #2: Build-to-Rent. John Burns, renowned real estate consultant, estimates build-to-rent investor and capital transactions as follows. I extrapolated that into number of new homes.

Note the best two 2021 permit months were January and March. February was a sharp drop. Do you see the correlation between speculative Build-to Rent and stronger housing data? Not healthy.

Here Comes the Wood

Brokers are getting nervous, especially with Q3 PTS wood that will not ship until August and September.

This is my story and I’m sticking to it. Lumber is over bought and, in some cases, so is OSB. Nowhere in your lumber buying career should anyone ever have advised you to “just close your eyes and buy it.” Yet, many are doing just that at back-breaking prices.

Consider this, there is lots of business at $700 but should we collapse to $700 there will be a good reason to not buy it. I used to trade lumber futures back in the ‘80s with an order to “buy at the market down $30, but cancel if close.”

There is more wood being offered today than yesterday and more yesterday than the day before. This 2-tiered premium market is about to reverse to the more traditional 2-tiered discount market with broker wood trading well under the mills and mills locked out of the market because of delayed shipment...and the walls will come tumbling down...in blocks of $100.

When does this unraveling begin? Memorial Day weekend, home centers will acknowledge that they over-estimated and over-prepared for the 2021 DIY season. They will realize that May sales were a huge disappointment and they failed to correctly read the COVID reopening shift away from backyard towards vacation. Those vacation commitments have already been made, but not realized at home centers. That spells BIG TROUBLE for SYP; starting in May. Treaters are already liquidating.

COVID is not finished. Refusal to vaccinate will make the US vulnerable to new strains.

Finally, cost of home ownership vs renting has expanded from 3% to 12%. Basically, rents are not keeping pace with home prices. Historically, this is corrected by a bursting housing bubble. I believe May will be a major swing month for housing...not a good one.

Looking Forward...ML

Are you fed up with being caught on the wrong side of the market...losing orders because your lumber prices make you uncompetitive? I can assure you the orders you lose are not because the other guy is selling at a loss.

It’s not you or your buying style. It’s just timing. I forecast when the Lumber Market will rise and fall. No one else tells you months in advance when prices will reverse…no one! Call me @ 336.516.5584… www.laymansguide.info… matt@laymansguide.info