The housing numbers have been improving the last few months and Wall Street seems to believe the economy is on the road to recovery. Housing stocks like Pulte, DR Horton and Toll Brother have increased more than 50 percent in the last couple months. Lumber futures would seem like an excellent investment if the housing market is truly on the upswing, so why have lumber futures dropped from 235 to 172 in the last few months?
There was an oversupply of lumber earlier in the year as demand was dismal at beast. Some lumber mills were being shutdown and many mills decreased production. This caused a rebound in lumber prices into early summer, but prices have dropped since June. It would make sense to me that the main raw material for housing construction would benefit if the housing market were truly rebounding.
Maybe lumber traders don’t see the housing rebound as gaining much traction. Maybe there hasn’t been any new demand for lumber yet, as few new homes have been built – but they will.
I have to lean on the side that there is still too large of a supply of homes and there won’t be a strong rebound in demand for lumber anytime soon.