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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.

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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

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

The Rundown

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.

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Also see:

Goldman sees commodities rallying another 13.5% over next six months on strong demand

Analysts cut gold forecasts as economic growth recovers

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

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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)

Wednesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: CEO sells shares of this penny stock that’s rallied over 900% in 2021

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Tuesday’s Insider Report: CEO invests over $1-million in this small-cap stock

Tuesday’s analyst upgrades and downgrades

Number Cruncher: Twenty financially healthy companies with a sustainable dividend

Globe Advisor

Value opportunities still exist in shift to stock-picker’s market

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

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Ask Globe Investor

Question: Which is taxed more favourably, capital gains or dividends?

Answer: It depends. At low income levels, dividends are the clear winner. In several provinces, if your income is below a certain threshold ($49,020 in Ontario, for example) your marginal tax rate on dividends will be negative thanks to the dividend tax credit. You won’t get a refund for the negative tax, but it will offset your other taxes owing.

At progressively higher income levels, however, the relative advantage of dividends over capital gains narrows and eventually disappears. When taxable income reaches $98,040 in Ontario, for example, capital gains (which are effectively taxed at half of one’s marginal rate) get more favourable tax treatment. The difference is most pronounced at income of more than $220,000, when the marginal tax rate on capital gains is 26.76 per cent, compared with 39.34 per cent for dividends. (Want to know your marginal tax rate on different types of income? TaxTips.ca has detailed tax tables for all provinces and territories.)

--John Heinzl

What’s up in the days ahead

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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.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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