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Housing Starts Edge Up, SYP Prices Remain Strong in July

Housing Starts Edge Up, SYP Prices Remain Strong in July

Housing starts continued to inch upward in July, as southern yellow pine (SYP) lumber maintained the high price it has commanded since early April. Demand for housing—both new and previously-owned—remains robust enough to drive the prices of already-short inventories out of reach for many buyers. Given the pervasive sense of market uncertainty that we covered last month, this trend is positive news for a sector that has, for the most part, continued to perform since being devastated during the Great Recession of 2008.

In fact, Bloomberg notes that builders are responding to the strongest home sales since the start of the economic expansion, which is due to strong hiring and cheap financing. “More houses were under construction last month than at any time since the beginning of 2008, indicating homebuilders were making headway in filling orders.”

 

The Numbers

July 2016 housing starts were at a seasonally adjusted annual rate (SAAR) of 1,211,000, or 2.1 percent above the revised June estimate of 1,186,000, and 5.6 percent above the July 2015 rate of 1,147,000. Single-family housing starts were at a rate of 770,000, which is 0.5 percent above the revised June figure of 766,000.

Building permits ticked downward in July; privately-owned housing unit permits were at a SAAR of 1,152,000, or 0.1 percent below the revised June rate of 1,153,000. Single-family authorizations were at a rate of 711,000, which is 3.7 percent below the revised June figure of 738,000.

The gap in regional disparities narrowed in July, as confirmed by the US Census Bureau report. While the swings in data weren’t as dramatic as they were last month, activity in the West abruptly reversed course. Seasonally-adjusted housing starts by region for July included:

  • Northeast: +15.5 percent; (+46.3 percent last month)
  • South: +3.5 percent; (-3.4 percent last month)
  • Midwest: +2.3 percent; (-5.2 percent last month)
  • West: -5.9 percent; (+17.4 percent last month)

The National Association of Home Builders’ (NAHB) sentiment index recently rose two points to a level of 61, which is the highest the reading has been since November 2005. "Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July," said NAHB chief economist Robert Dietz. "Historically low mortgage rates, increased household formations, and a firming labor market will help keep housing on an upward path during the rest of the year." The 30-year fixed mortgage rate further ticked downward to 3.44.; this is 11 percent below the January 2016 rate, and is the lowest point it has been since January 2013.

 

SYP Prices and Housing Trends

The price of southern yellow pine lumber remains strong as it hovers around the $400/mbf mark. SYP lumber finished week 33 at over $395/mbf, which is 21 percent above its January 2016 starting point of $326/mbf, and 32 percent above its 2015 week 33 price of $301/mbf. 

 SYP_Aug_2016.png

 

Despite the slight gain in single-family data for July, the continued high price for SYP lumber indicates that demand for this housing type remains strong. A typical home uses about 16,000 board feet of lumber and more than 14,000 board feet of related wood products, including plywood. (Multi-family units do not typically use as much lumber as single-family units.) Just a month ago, purchases of new single-family homes rose to a 592,000 annualized rate, which was the highest level in more than eight years. 

Robert Dietz added that "Single-family starts, on a year-to-date basis, are up 10.6 percent and builders are cautiously optimistic about market conditions. However, the permit trends indicate that supply-side headwinds, such as shortages of lots and labor, continue to affect the housing sector."

The recent pickup in new housing demand was led by a 10.9 percent increase in the West. In the Midwest, sales jumped 10.4 percent, the strongest since November 2007, while purchases slightly decreased in the South and Northeast. This surge in sales pushed the supply of available homes down to 4.9 months (the lowest level since February 2015) from 5.1 months in May. There were 244,000 new houses on the market at the end of June, compared with 241,000 in the prior two months. 

Yet, almost a third of all wood used in US homes now comes from Canada, where a flood in shipments has compounded the complexities involved with the Softwood Lumber Agreement (SLA) and the chance of new import tariffs should a resolution not be reached by October. Canadian exports of lumber increased to 7.45 billion board feet in 1H2016, up 20 percent from the same period last year according to Canadian trade data.

 Canada_Exports.jpg

 

 “The grinding recovery continues,” said Brett Ryan, a US economist at Deutsche Bank Securities. “The fundamental underpinnings are still really supportive for housing, so it should be a steady contributor to growth over the next year or so.” While the underpinnings may indeed be there, it’s too early to tell if real growth is in the forecast for 2017. Let’s hope that the post-election economic climate can provide some degree of certainty—or at least a modicum of confidence—in the markets.

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