Thursday, May 16, 2013

Is the massive drop in lumber futures telling us something?

According to Nick Timiraos from the WSJ, the latest drop in the seasonally adjusted housing starts measure is nothing to worry about.

In fact he lists 4 reasons why this unexpected decline isn't in any way a sign of potential slowdown in the housing market.
WSJ: - Thursday’s housing report isn’t as much a signal that the sector is cooling—at least not until there are a few more of these reports—and instead a sign that the housing rebound isn’t going to unfold in a straight line
Perhaps. If we are not witnessing a cooling in new home construction, maybe Mr. Timiraos can explain why lumber futures have declined over 20% in the last couple of months. In April the explanation for the decline was related to cooler than usual weather conditions hampering construction. What happened in May? Some have rationalized this by the economic weakness in China. But the last time we checked a large chunk of this Globex-settled lumber still goes into new home construction - while the supply certainly hasn't changed. We look forward to hearing Mr. Timiraos' explanation.

July-2013 Random Length Lumber Futures (source: CME Group)
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