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Housing Market & Lumber Price Update - October/November 2013

Housing Market & Lumber Price Update - October/November 2013
The debate over the health of the housing market continues. Optimists point to a significant rise in housing permits over the past month while pessimists express concern over declining home sales and rising interest rates.  Here at Forest2Market, we took a look at where lumber prices fit in with the housing market picture.

Housing Permits vs. Housing Starts

Preliminary data provided by the US Census Bureau and the Department of Housing and Urban Development (HUD) puts housing permits over the one million mark for the second time this year. At 1,034,000, October housing permits increased 6.2 percent over the September rate of 974,000.

We do not yet know how the picture for recent months’ actual housing starts will develop as the recent government shutdown has delayed the availability of new housing data until year end.  One thing we do know is that 1 million housing starts is a good estimate of what the market can currently handle. If the million plus permits actually turn into starts within 120 days, it bodes well for an interesting 2014.

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Housing Starts & Lumber Prices

Last November, Southern Yellow Pine prices climbed to unseasonably high levels. Prices continued to climb until they peaked in March 2013, and have since returned to their levels of one year ago.

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Will history repeat itself this year, and will prices charge higher in December and 1Q2014? The following chart shows composite lumber price data from our Mill2Market weekly lumber market and housing start data. The leveling off of lumber prices would suggest that housing starts have remained relatively flat in September and October. However, it is also important to note that housing starts jumped in December 2012, as builders geared up for the spring home building and buying season. If December 2013 follows a similar pattern, we expect lumber prices to climb higher over 1Q2014.

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Home Sales

The Pending Home Sales Index, put out by the National Association of Realtors (NAR), fell 0.6 percent from September to October to settle in at 102.1. This marks the lowest level in nearly a year; the December 2012 index was at 101.3.

NAR Chief Economist Lawrence Yun attributed the weak activity to the government shutdown in early October. “We could rebound a bit from this level but still face the headwinds of limited inventory and falling affordability conditions.” Looking ahead, Yun noted another government shutdown as well as new mortgage rules that are expected to delay the approval process could further harm the housing market in 2014.

Meanwhile, existing home sales also declined, falling 3.2 percent to come in at 5.12 million sales in October. Despite the decrease, for 28 months sales have remained above their year-ago levels. The median sale price of existing homes was recorded at $199,500 for October.

Data for new home sales, price, and inventory was not available from the US Census Bureau and HUD, a lingering result of the government shutdown in early October.

Home Prices

Average home prices are at levels last seen in mid-2004, according to the S&P/Case-Shiller Home Price Index. The 10- and 20-city composites gained 0.7% for the month and increased 13.3% year-over-year through September 2013.

David M. Blitzer, Chairman of the Index Committee, commented the second and third quarters of this year were good for home prices. “The National Index is up 11.2% year-over-year, the strongest figure since the boom peaked in 2006. The 10-City and 20-City Composites year-over-year growth at 13.3% was their highest annual numbers since February 2006.”

Mortgage Applications & Interest Rates

Some industry watchers have asked if home prices have peaked as interest rates move consistently upwards. Despite the increase from lows seen in the spring and summer, interest rates are expected to remain low from a historical perspective as the economy continues its recovery.

The contract interest rate for a 30-year fixed mortgage was 4.46% as of the week ending November 15. As interest rates climbed, the volume of mortgage loan applications fell during the first half of the month.

Housing Inventory & Builder Confidence

Both existing home inventory and builder confidence remained steady from September to October. Inventory inched upwards from 4.9 to 5.0 months’ supply.

Builder confidence remained at 54. Notably, builder confidence has not dipped below 50 since reaching a mark of 52 back in June.

With just one month left in 2012, the overall market picture to close out the year and ring in 2014 appears one of cautious optimism.weekly lumber market report and benchmark