U.S. housing demand is picking up, combining with Canada’s fevered real estate market to send lumber prices into the stratosphere. Panic buying has reached the point where Citi analyst Anthony Pettinari felt the need to write an entire 10-page report wondering whether high lumber prices will prevent new homes from being built.
Lumber is now trading at US$1,188 per thousand board feet (kbft), up 240 per cent year over year and more than triple the 2000-2020 average price. Demand is clearly outstripping supply as forestry companies, who were hit hard by cratering demand after the U.S. housing bubble imploded, cut production as the pandemic began in expectation of a similar slowdown in construction.
U.S. demand for housing instead climbed, as did renovation activity, draining lumber inventories and creating the current shortages. Mr. Pettinari cites National Association of Homebuilders estimates that the rise in lumber prices has increased the cost of building a home by an average of US$24,000.
Despite the increased input costs, Citi does not believe U.S. homebuilding activity will slow. The analyst sees lumber prices peaking near current levels, and falling US$900/kbft in the third quarter and then averaging US$550/kbft in 2022, as idled mills come back online.
For investors, I’ve saved the most important takeaway for last. Whereas Mr. Pettinari doesn’t forecast slowing housing construction, he does expect that higher lumber costs will make renovations prohibitively expensive for many consumers. This will have negative knock-off effects on home improvement related businesses like Home Depot Inc. and Lowe’s Companies Inc.
-- Scott Barlow, Globe and Mail market strategist
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Copper, ‘the new oil,’ leads metals surge amid global economic rebound
While prices have soared across the spectrum of commodity markets, including forest products and agricultural commodities, industrial metals have recently taken centre stage in financial markets. As Tim Shufelt reports, explosive demand combined with persistent supply constraints lingering from widespread shutdowns means metals are seeing the most bullish set-up in years.
What’s driving the Canadian dollar higher? It may not be what you think
The Canadian dollar jumped almost a full cent against the greenback last Wednesday after the Bank of Canada announced a surprisingly hawkish monetary outlook. The move, however, could prove deceiving. Reaction in the currency market to central bank policy has been increasingly hard to detect over the past few years. Instead, the Canadian dollar has become a global reflation trade – tracking the copper price far more closely than fixed income markets or even crude. And given the copper price this week is retesting record highs of above US$10,000 a tonne (about US$4.50 a pound) last seen a decade ago, the Canadian dollar seems well supported at current levels. Scott Barlow has this analysis on the forces behind the currency’s latest moves.
A peek into the trading habits of your fellow DIY investors
Are you a DIY investor wondering how normal your habits are? Then read on. This recent survey from 2,000 do-it-yourself investors that was conducted for the Ontario Securities Commission has some answers.
A contrarian case for bonds – and stellar returns ahead
Long-term bonds have become outcasts at the investor’s ball. Yields are very low, and prices – which move inversely – may appear to have nowhere to go but down. But could this oft-heard viewpoint be misplaced at this time of hyper-stimulative monetary and fiscal policies? One of Wall Street’s best-performing fixed income fund managers certainly thinks so. And if the long-time bond bull is correct in his expectations for the direction of yields, it would translate into U.S. and Canadian bonds of longer durations delivering capital gains of between 15 per cent to 35 per cent over the next year or two. Larry MacDonald reports.
Others (for subscribers)
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Number Cruncher: Twenty financially healthy companies with a sustainable dividend
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What’s up in the days ahead
It isn’t just ETF sales that are soaring. Mutual funds are enjoying major inflows as well. Clare O’Hara will report on the latest numbers and what’s driving them.
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Compiled by Globe Investor Staff