US Housing Starts Soar, Putting Pressure on Lumber Prices
According to data released by the United States Census Bureau, housing starts in the country experienced a significant jump in May, reaching 1.631 million units. This represents a 22% increase, or 291,000 permit applications, compared to the previous month. It is also the highest number of housing starts since April 2022, which stood at 1.803 million units.
This surge in housing starts has caught many analysts by surprise and has led to increased pressure on softwood lumber prices in North America. The continent is already facing a shrinking supply of lumber, particularly due to the forest fires in Quebec.
Over the past five years, housing starts in the United States have exceeded 1.6 million units on only 11 occasions, according to historical data analyzed by Deals. This highlights the significance of the current increase in housing starts.
The impact of this trend can be observed in lumber futures contracts, which determine the value of an asset at a future date. The value of these contracts has been steadily increasing on the Chicago Mercantile Exchange, the benchmark exchange for commodities and natural resources in North America. As of June 21, futures contracts for lumber traded at US$549.50 (C$724.24), marking a more than 13% increase since June 1.
The rise in North American demand for wood has not only put pressure on prices but also on supply. Michel Vincent, Economics and Markets Director at the Quebec Forest Industry Council (CIFQ), points out that the reduction in the allowable cut in British Columbia, permanent mill closures, and increasing costs are affecting the supply. Additionally, the forest fires in Quebec have led to the cessation of sawing operations, further impacting the supply of lumber.
The surge in housing starts in May has also boosted confidence among homebuilders in the United States. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) reported a five-point increase in builder confidence for newly built single-family homes in June, reaching 55. This marks the sixth consecutive month of increasing builder confidence and the first time sentiment levels have exceeded the midpoint of 50 since July 2022, according to NAHB.
The strong performance of the US economy is also contributing to the robust housing market. Desjardins Group’s economic forecasts predict that the GDP of the United States will grow by 1.1% in 2023 and 1.2% in 2024, following a 2.1% growth in 2022. In comparison, Quebec is expected to experience economic growth of 0.4% in 2023 and 0.6% in 2024, according to Desjardins economists.
Overall, the spectacular rebound in housing starts in the United States is driving up demand for lumber and putting pressure on prices. With supply already constrained, the future of the lumber market in North America remains uncertain.
How have the surge in housing starts and supply chain constraints influenced lumber prices in the US?
Uture date. Lumber futures for July delivery reached a record high of $1,711.20 per thousand board feet on May 7, before falling to $1,344.80 on June 15. However, with the recent surge in housing starts, there is potential for lumber prices to rebound in the coming months.
The increase in housing starts can be attributed to several factors. Firstly, the low interest rates and pandemic-induced changes in lifestyle have led many people to consider purchasing or renovating homes. Additionally, the demand for larger homes with more space for remote work and virtual learning has also contributed to housing starts.
The surge in housing starts is a positive sign for the US economy, as it indicates increased consumer confidence and investment in the real estate sector. However, it also brings along challenges in terms of supply chain constraints and rising construction costs.
The shortage of lumber in North America has been a concern for the construction industry for several months. The forest fires in Quebec have further exacerbated this issue, as they have harmed the region’s lumber supply. This has led to skyrocketing lumber prices, impacting both builders and consumers.
To address the supply-demand mismatch, lumber producers are ramping up production. However, it takes time to replenish the supply, given the long growth cycles of trees. As a result, lumber prices are expected to remain high in the short term.
The increase in housing starts puts additional pressure on lumber prices, as builders scramble to secure the necessary materials for construction projects. This has forced some builders to delay or cancel projects due to the unaffordable cost of lumber.
In conclusion, the surge in US housing starts in May has put pressure on lumber prices, which are already facing supply constraints due to forest fires in Quebec. While this increase in housing starts is a positive sign for the economy, it poses challenges for the construction industry in terms of rising costs and supply chain constraints. Lumber producers are working to ramp up production, but it will take time to replenish the supply and stabilize prices.
The significant surge in US housing starts in May is undoubtedly good news for the economy, but it is also adding further pressure to already high softwood lumber prices in North America. As the demand for construction materials continues to rise, finding a solution to alleviate the strain on lumber prices becomes even more urgent.