In our comprehensive analysis of July’s lumber market news, a prevailing sense of cautious optimism is evident despite ongoing challenges. Belco’s forecast continues to project resilience and adaptability within the current landscape.
Builder Sentiment: Cautiously Optimistic Growth
Builders’ outlook remains cautiously optimistic, as evidenced by the NAHB Housing Market Index (HMI) climbing another point to reach 56. Regionally, there have been shifts, with the West experiencing a drop to 59 while the East saw an increase to 54. Within the three components that compose the National HMI, both present Single Family (SF) Sales and Traffic of Prospective Buyers posted gains. However, a noteworthy point emerges as SF Sales over six months experienced a slight decline from 62 to 60. This shift reflects the impact of mortgage rates inching towards 7%, coupled with the “end” of the traditional new home selling season, historically spanning from February to May. Despite this, the overall sentiment remains optimistic, pointing to a market that is resilient in the face of challenges.
New Construction Advantage Persists
The competitive edge of new construction persists due to limited resale inventory, a scenario bolstered by dominant cash buyers, particularly in affordable and relocation markets. Recent tightening of credit availability following the Silicon Valley Bank (SVB) collapse further underscores the strategic position of new builders, well-equipped to cater to the evolving market dynamics. These insights gleaned by Belco Forest Products reaffirm the viability of new construction ventures.
NAHB Lumber Market News: Growth Amidst Challenges
The NAHB executive level lumber market forecast projects an increase in total SF starts for 2023. The forecast stands at 875,000 units, reflecting a 1.86% uptick from the previous month. Notably, a closer look at rolling 12-month totals indicates that Q2 2023 is set to emerge as the strongest 12-month period. Optimism extends to quarters 3 and 4 as well, with robust outlooks. Looking ahead, the forecasts for 2024 and 2025 remain strong, with anticipated year-over-year growth rates of 6% and 12%, respectively.
Factors Shaping the Future: Insights from Zonda
While navigating the path of cautious optimism, it’s important to consider the insights provided by Zonda. Several factors are poised to influence the trajectory of new SF construction moving forward:
Land prices are on the rise, accounting for up to 50% of a home’s cost. Government and land services emerge as key disruptions for builders in the current landscape.
Cash buyers continue to exert influence, particularly in affordable and relocation markets. The tightening of credit availability since SVB has further highlighted this trend.
Normalizing Bond and Mortgage Spread
Historically, a strong correlation between government bonds and mortgages exists, often with a spread of 1.7%. Presently, the spread has widened to 3%. Normalizing this spread could potentially lead to mortgages in the 5-6% range, fostering activity in both new and resale markets.
Cautious Optimism Prevails
In the face of challenges like fluctuating mortgage rates and evolving market dynamics, the lumber industry continues its upward trajectory. Builder sentiment, the persistent new construction advantage, and insightful forecasts all contribute to an environment that navigates change with confidence. Armed with a resilient lumber market forecast, the lumber industry remains poised for growth. It’s imperative to remain attentive to these trends and their nuanced interplay as we navigate the months ahead.