Lumber Prices Supported by -1.3% Drop in U.S. Existing Home Sales

Sales of existing homes in the U.S. disappointed. They were down -1.3% in July. This comes after -2.0% drop in June and marks the first time since 2015 that existing home sales fell back-to-back.

Why the drop in sales? According to Larry Yun, the Chief Economist of the National Association of Realtors, it’s because “home prices are still rising above incomes and way too fast in many markets”.

Why are home prices rising so fast? In many markets, there just isn’t enough supply to meet demand. Take California for example, only half of the 180,000 homes needed annually are being built.

If rapid price increases are reflective of constrained supply, then this should incentivize new home construction and support further growth of lumber demand and lumber prices. In fact, 2017 began with housing fundamentals set for continued strength in lumber prices. And these fundamentals are a big reason why U.S. lumber prices have remained well-above seasonal averages thus far in 2017.

While prices typically soften in September, slowing home sales resulting from rapid price increases support the case for continued momentum in lumber prices going into year-end and Spring 2018.

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