Posted on 01/08/2010 7:43:12 AM PST by blam
The Price Of Construction Materials Is About To Soar
Commodities / Investing 2010
Jan 08, 2010 - 01:46 AM
By: DailyWealth
Tom Dyson writes: If you want to know what's going on in the economy, you need to watch the price of lumber...
Housing is the most important asset class in America. When house prices fall, banks fail, consumers cut back, unemployment rises, and the economy collapses. But when house prices are strong, the economy rebounds.
In other words, the U.S. real estate market is the main pivot in the whole economic mess we're in right now. If you can figure out what's happening in real estate, you can figure out everything else. Lumber and building materials are the best leading indicators of real estate.
Take the timeline of the current crisis as an example... The lumber price reacted before any other market: Lumber prices peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. The Case-Shiller U.S. Home Price Index peaked in July 2006. The credit crunch started in February 2007, when New Century Financial collapsed. And finally, the S&P 500 peaked in October 2007.
When the recovery comes, I expect it'll show up first in building materials, too...
So what's happening right now in the building materials markets?
Ro-Mac is a $100 million lumberyard near Orlando, Florida. Ro-Mac supplies central Florida's homebuilders and contractors with building materials like 2x4s, rebar concrete, and gypsum wallboards.
I received an e-mail from Ro-Mac's general manager, Don Magruder, last week. Don says several suppliers announced price hikes in December and he expects "a caravan" of further price increases in January.
"My feeling is that the month of December is the calm before the price storm of 2010," he writes. Don advises contractors and builders to be "wary" of entering long-term contracts.
He says supply is the reason prices are going to rise. Manufacturers of building materials have closed plants, fired workers, and sold their inventories. Many have gone out of business altogether. Don calls it "supply destruction." He says the moment demand picks up, there's going to be an instant shortage of materials.
[snip]
Don’t worry the Chi-coms have plenty of sheet rock to sell us.....
Oh, it will happen, the only question is when. Speaking from experience, if you are lucky enough to be employed in the construction materials industry at the beginning of an economic expansion (and at the end of a contraction), have the Maalox ready.
Given the glut of unsold homes that remain on the market (including those built within the last 1-2 years that remain unsold) it's highly unlikely we're going to see a re-bound in home construction and rising construction supply prices anytime soon.
As commercial real estate collapses, that's going to further drive down demand for building supplies. Anyone seen the Dead Malls website? You'd be surprised to see the amount of empty retail space out there today. I live near a very popular mall and highly traffic'ed retail area in the S.W. suburbs of Chicago and it's amazing how much empty space there is in the last few years ....
Liberals think we’re in a reboud.
I’ve definitely been enjoying the low price of lumber for the last year or so. Lots of remodeling going on at my place.
We will be building everything out of bamboo before long.
Bamboo is an excellent structural material and a fast-growing renewable resource. I wish we did build with bamboo. And we don’t have to have it shipped in from China either...just put a few bamboo plants out in a field and see what happens.
Why go to the mall and waste money when you can get it online cheaper and delivered to your door?
Stagflation is impossible.
Bernanke tells us so.
This “email on building supplies” is like a snow forecast. At least around here (KY). They forecast snow and all of a sudden, the grocery stores are packed—as if the snow lasts on the ground for more than two days anyway and we’re all bound to be reduced to cannibalism because of it.
It’s pretty much a joke. And weird conditioning.
Huh? Where did he say that?
Bingo.
I've been calling in a deflationary implosion. All the free credit infrastucture built with bubbles is being liquidated now. There won't be any supply, because their won't be any production capacity.
However, I predict a different kind of housing boom:
Thoughts?
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