More Building, Less Logging Send Wood Prices Upstream : Resources: Investors see continued demand in wake of Midwest floods, California fires.
Lumber prices soared Tuesday, propelled by a report that sales of new houses in September increased at the fastest pace in seven years.
Traders were also betting that demand for lumber will stay strong as the nation rebuilds and repairs homes damaged by floods in the Midwest and brush fires in California.
On the Chicago Mercantile Exchange, November lumber shot up to $379.70 per thousand board feet, up $12.70 from Monday’s closing price and an eight-month high.
“The housing market is really starting to kick in,” said Linda Lieberman, an analyst at Bear Stearns & Co. “We are truly seeing some better housing numbers.”
The Commerce Department said new-home sales climbed 20.8% in September to a seasonally adjusted annual rate of 762,000 units. It was the biggest increase in any month since a 22.9% gain registered in September, 1986.
The increase far surpassed Wall Street economists’ forecasts for sales of 648,000 in September. Every region of the country shared in the gain except the Northeast, where sales fell.
Forest products stocks gained on Wall Street as timber prices rocketed on the surging housing demand. Louisiana Pacific gained $3.125 to $41.50; Weyerhaeuser added $1.375 to $42; Champion International rose $1.50 to $30.75.
Analysts say low interest rates have stimulated home building at a time when lumber supplies are tight and mills are coping with logging restrictions in the Pacific Northwest.
“I think inventories are unusually low,” Lieberman said. “They (lumber yards) are not building inventories. They are buying for current needs.”
The lumber market is also gearing up for rebuilding necessitated by the summer’s devastating Midwest floods and the recent California fires, Lieberman said.
Paul Court, analyst at Paul Court Co. in Detroit, said lumberyards have been reluctant to build up inventories since they were stung by a sharp drop in lumber prices this summer.
“They just don’t feel comfortable with these high prices,” he said.
As lumber prices climb, so will the cost of a new home, but with interest rates the lowest in 25 years, analysts see no immediate downturn in housing demand.
Glenn Rutledge, vice president of operations at Concord Homes in Palatine, Ill., said the home building business has been good and that his company, a major builder in the Chicago region, expects to stay busy through the winter.
“We will probably be putting in more homes this winter than we will next summer, because we have had an exceptionally good year,” he said.
Lumber prices account for up to 20% of the cost of a $175,000 house. In 1993, Rutledge said, rising lumber prices pushed up the prices of Concord homes by 3% to 5%.
