The U.S. residential real estate market has held up far better and far longer than the U.S. commercial real estate sector.
Yet, keep an eye on lumber prices. They tend to be correlated with the pace of residential real estate construction.
Let’s get you up to speed on that topic as we show this chart and commentary from our April Elliott Wave Theorist:
Lumber prices tend to fluctuate with the demand for new housing. The chart shows some history. Lumber prices were relatively calm until 2020-2022, when Wall Street firms went crazy buying up homes across the country, as if they are some sort of long term investment vehicle. All that investment jacked up home prices and prompted new building.
Lumber prices plunged in 2022, then recovered somewhat into early March of this year. In recent weeks, they have slid persistently, down 10% in a month. I think the bear market in lumber prices is resuming.
By June 27, we had this news item from Business Insider:
Lumber prices are down 24% from their mid-March peak
Now let’s get this update from our July Elliott Wave Theorist:
In the area of real estate, price declines are well underway in the commercial-property sector, and they are beginning to appear in the housing sector. The April 12 issue of The Elliott Wave Theorist predicted further fall in lumber prices to parallel a slowdown in construction. The chart shows the downtrend since then.
As The New York Times reported on June 20:
Home building in May fell to its slowest pace in four years
Keep in mind that lumber prices are an early indicator of housing prices. For instance, they declined for two years before the high in home prices in 2006, which was one year prior to the stock market’s high in 2007, which led to the Great Recession.
We’re keeping a close watch on numerous stock market indicators, as well as real estate and the economy.
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What Lumber Prices Tell Us About U.S. Residential Real Estate
Here’s what we can learn from the prior housing bust which started in 2006
U.S. home construction recently fell to its slowest rate in four years. Learn what this has to do with lumber prices, and in turn, what lumber prices tell us about the prospects for the U.S. housing market.
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