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A shortage of building materials highlights a U.S. housing sector recovery that may be proceeding more quickly than most investors thought. The sheer size of the U.S. housing sector – estimated at between $10- and $15-trillion – implies that the rebound could have enormous positive effects on the economy on both sides of the border.
A recent Wall Street Journal report noted a shortage of plywood caused by the sharp rebound in housing activity:
"Growing demand and tight supplies have pushed up plywood prices by 45 per cent in the past year, and U.S. producers are scrambling to get back up to speed after slashing output of the basic construction material during the housing bust."
Lacking a plywood futures market, we looked at recent activity in the lumber futures market to confirm the anecdotal strength in this all-important market sector. The results were encouraging (see chart). Since the beginning of 2012, a 32 per cent jump in housing starts was accompanied by a 48 per cent price surge in lumber prices.
As a sign of actual homes being built, higher lumber prices are a clear sign that the U.S. housing market has at the very least regained its footing. The economic effects – wages for construction workers and higher demand for related supplies and equipment – are likely to filter through to gross domestic product in the months ahead.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.
Scott Barlow