In both the lumber and stock markets, there are more disruptions coming in 2019. The immediate influences of government shutdown, mass exodus from stocks, on-going trade war, volatile oil market, fight to suppress interest rates, President Trump’s legal issues, and global economic and political unrest are enough to cause investors of both markets to play cautiously, more cautiously than any time since 2009.
Last month, LLG made a case for lumber and stocks to move 20% lower if pro-recession cheerleaders talked the markets, investors, and businesses into a deeper economic slowdown. Since then, we have had a month-long government shutdown, trade war escalation, signs of housing weakness, and general tone of economic feverish lethargy and rampant apathy. The world is on hold waiting for America to do something about all the irons in its fire.
Those 2019 lead off disruptions are losing their hypnotic hold on housing and our lumber market. How can that be, you ask? Time! Housing is about to embark on its seasonal sprint, and none of the current disruptions can stop it.
February is the big presales month for large home builders. This will give a preview of 2019 housing starts. Builders are coming off of a stronger than expected December sales, in contrast to lower existing sales. When the higher Jan HMI (builder confidence) was announced last week, folks were bullish on housing. The reason builders were more optimistic was the quality of December shoppers.
Builders will nullify the affordability objection right out of the chute in February. Interest rates are not the issue, down payment is. Lenders are offering 3–5% down with PMI in lieu of 20% down, and without interest rate or closing costs penalties.
Trade disputes will settle not impact U.S. housing. Lumber, yes, but not housing. Government shutdown is adding to already strong pent up demand and that is bullish for lumber.
In short, the new home construction season is 30 days away and will happen regardless of disruptions. (Existing home sales will be remedied with lower sales prices.)
Overlaid on the disruptions we have:
- lower home prices coming
- higher volume of “affordable” homes being built
- mortgage rates under 5%
- easing credit requirements
- lower down payments
- shortage of new home supply
- rising housing demand from all age groups and demographics.
The chart illustrates why the lumber market will rally this spring. The only questions are how high and when? LLG members began buying the end of January.
Looking Forward...ML
A veteran lumberman, Matt Layman publishes Layman’s Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or Matt@laymansguide.info.
*Layman’s Lumber Guide Membership – Free 2-Month Preview*
If you would like to enroll in the Free February thru March 2-month Preview and be eligible for Spring Membership, please forward your contact information to: matt@laymansguide.info.