Lumber’s Housing Woes

No new buyers of homes plus the millions of existing homes on the market doesn’t bode well for timber prices in the near future. The U.S. Commerce Department recently reported its new home sales figure; 300,000 in May. This was a sharp decline from the analyst’s estimate of 400,000. The sharp plunge came after the expiration of a recession fighting tax credit for first-time home buyers on April 30. In addition, Canadian lumber producers will see a 10 percent tax added onto the price of timber as per the Softwood Lumber Agreement of 2006. This will add rising costs to lumber producers on top of the low price for wood products. Lumber futures have fallen from around $240 to around $174. The long term theory for timber investment is sound as expanding populations, less harvestable acreage and invasive destruction caused by Asian longhorn and pine beetles, will ultimately drive up prices. However, over the short term, the fragile housing market will still wreak havoc on timber prices. Investors may want to put the Claymore/Beacon Global Timber Index CUT and iShares S&P Global Timber & Forestry WOOD on their watch lists for better entry points down the road.