Furniture buyers are experiencing delays due to material shortages and increased costs. FOX Business’ Grady Trimble and more.
Rising timber prices are holding back an American housing market.
The number of building permits issued in March increased by 2.7% month-on-month to a seasonally adjusted annual rate of 1,766 million. The rise is a lightning bolt on the radar compared to the 19.4% increase in early home growth, which has been growing at its fastest pace in almost 16 years. According to the National Association of Home Builders, construction usually begins within two months of issue.
Some developers have “held back projects in the expectation that prices will fall soon,” wrote Matthew Pointon, senior real estate economist at research firm Capital Economics.
| Ticker | Safety | Last | Alter | Alter% |
|---|---|---|---|---|
| XLB | MATERIAL SELECT SECTOR SPDR ETF | 82.64 | +0.97 | + 1.19% |
HOUSING DISCOUNT GETS UP WHEN THOUSAND SERVICES START BUYING HOUSES
Wood contracts in the first month traded at CME Group climbed 47% this year to $ 1,286 per thousand feet. Prices are up 395% from their lowest pandemic in April 2020, below $ 260.
Source: FactSet, Dow Jones Market Data
The sharp rise in prices comes as wood supplies were depleted this year as Americans embarked on home improvement projects while packing at home during the COVID-19 pandemic.
| Ticker | Safety | Last | Alter | Alter% |
|---|---|---|---|---|
| WOOD | ISHARES TRUST S&P GLOBAL TIMBER & FORESTR | 94.03 | +1.98 | + 2.15% |
Restaurants have contributed to the supply issues by building outdoor seating for customers who are not allowed to eat indoors.
All this is exacerbated by a sharp decline in production, as mills were closed during the early days of the pandemic and production is slowly increasing.
The rising prices have ‘made it virtually impossible to negotiate an agreement with a prospective homebuyer that will not be changed before you even start building,’ Jerry Howard, chief executive of the National Association of Homebuilders, told FOX last month Business said.
Jerry Howard, CEO of the National Association of Home Builders (NAHB), on the latest sentiment from homeowners and affordable housing in the US.
He said the rise in prices had increased the price of a new home by tens of thousands of dollars, and that builders should add escalator clauses to contracts. A recent report by CoreLogic found that house prices rose 10.4% year-on-year in February, their biggest rise since 2006 – just before the real estate bubble burst.
The current rising rise in timber prices has ‘mania traits’, writes David Rosenberg, chief economist and strategist at Rosenberg Research in Toronto.
He warned that prices would not disappoint any time soon, as it could ‘remain overbought for long periods before finally relaxing’.
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No matter where the prices go from here, homebuilders may not be able to wait much longer to start building.
“A large backlog of homes that have been approved but not started will support single-family building this year,” Pointon wrote.