Although the correlation isn’t direct and immediate, U.S. single-family housing completions tend to benefit U.S. hardwood grade lumber prices, because cabinets, flooring and home furnishings help drive a portion of our domestic hardwood demand. And, single-family homes traditionally utilize more hardwoods than multi-unit home construction uses on a per finished-square-foot basis.
Despite steady recovery in both single-family starts and completions following the Great Recession, both metrics have declined slightly in recent months, and must rise considerably to ultimately keep pace with the pace of new household formations during the same period.
For over a decade, annual cumulative new household formations have outpaced cumulative new home completions, thus indicating a backlog of approximately 4.58 million homes. And, given that U.S. single-family home completion rates have been hovering near 1 million units per year, it could take decades of strong growth in U.S. home construction to bring new home availability in line with the past 13 years’ growth in household formations.
While the Chinese Yuan has weakened against the dollar in recent months, the U.S. monetary base has stabilized relative to its 2022 high. This – and other factors – have kept U.S. hardwood grade lumber prices fairly stable at their current, relatively low levels. Until the Chinese economy strengthens and U.S. home construction rebounds, look for U.S. hardwood grade lumber prices to remain stable at moderately low levels, relative to recent historic highs.
Core inflation continues to rise. On a relative basis – using January 2010 as a benchmark – wages have risen more than core inflation has over the past 13 years. Meanwhile, U.S. hardwood grade lumber prices remain at a cycle low for now, and are likely to slowly rebound with domestic economic growth during the next two years.
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