“Lumber prices have shot to fresh records, defying the normal winter slowdown in wood-product sales in a sign that the pandemic building boom is bowling into 2021,” WSJ writes.
Chris Virostek, Finance Chief at West Fraser Timber Co., North America’s Largest Lumber Producer: “We don’t expect these prices forever, but what we are seeing is a bit of acceptance that maybe going forward the price level may be different than it has been in the past.”
- Across species, products and grades new highs have been reached, per pricing service Random Lengths.
- West Fraser has seen its share price more than quadruple while the S&P 500 has gained 75% in that span.
“Housing affordability is the primary threat to the lumber rally, Weyerhaeuser Chief Executive Devin Stockfish told investors recently. Home prices are on their fastest climb since the run-up to the housing crash 15 years ago. The frenzy has helped builders protect their profit margins by raising prices on everything from mobile homes to McMansions.”
Numbers To Consider:
- Lumber futures have risen 47% in the last few weeks, almost reaching records hit in September.
- Lumber, for March delivery, ended trading at $982.10 per thousand board feet on Friday. It’s more than twice the price of a year earlier.
- Contracts for May delivery sat at $830.90 on Friday.
- March 2022, the most distant and cheapest futures, starts at $695, which is still above the pre-pandemic record of $639.
- “U.S. homeowners with mortgages collectively gained about $1 trillion in home equity in the 12 months that ended Sept. 30, according to real-estate data firm CoreLogic Inc.”
It might be time for us to look at some homebuilding stocks on the ROIC Big Board. They are all trading for high free cash flow yields and are expected to see at least 2-3 years of strong growth in this environment.
This will be a larger research project, as their business models are much more complicated than the technology companies we like covering. Homebuilders buy large amounts of land and materials as inventory, take a long time to build housing inventory, and then make profits when they sell homes.
This means there is a lot of nuance behind projecting their financials and estimating their fair valuation. Please stay tuned…