- Lumber prices jumped as much as 9% on Tuesday, extending its two-day rally to about 18%.
- The price reversal in the essential building commodity happened after a relentless 5-month sell-off of 63%.
- Signs are building that the housing market could stick a soft landing, according to Alto Research.
Lumber prices surged as much as 9% on Tuesday, extending a two-day rally to 18% at its high of $565 per thousand board feet.
The sudden spike comes after a relentless five-month sell-off that saw prices decline by as much as 65% as mortgage rates surged above 6% and concerns grew that demand for housing would plunge amid a real estate downturn.
But now signs are growing that the real estate market could be on the verge of sticking a “soft landing,” according to Altos Research CEO Mike Simonsen.
“Has the US real estate market managed to navigate a soft landing? It sure looks like that,” Simonsen said in a video to clients.
Simonsen pointed out that housing inventory growth, or the growth of single family homes available for sale, has started to slow in recent weeks, and its likely there will only be 535,000 homes for sale by year-end, if not less.
“Do we have to revise this forecast down?!” Simonsen said, noting that growth slowed even when accounting for a decent jump in inventory growth in early August. The lack of new home listing means “the voracious demand is gone,” Simonsen said.
That “voracious demand” has sparked bidding wars among home buyers, quickened the time it took to sell a property, and has led some to make big cash offers for homes. A cooldown in buying activity could be welcomed as long as home prices hold up, which so far, so good.
Median home prices have hovered just under $450,000 over the past month while the price of new listings has declined to about $400,000, according to Simonsen. “The price of new listing shows us the most egregious overpricers are gone. But normal seasonal patterns look just fine,” Simonsen said.
That commentary echoes two separate points about the housing market in recent weeks. On Monday, JPMorgan said it expected home prices to hold up well going forward.
“While housing activity has weakened sharply, and house prices have levelled off, after strong gains, they are likely to stay resilient,” JPMorgan’s Mislav Matejka said.
Additionally, the removal of “egregious overpricers” in the housing market echoes comments from LGI Homes CEO Eric Lipar, who said in his company’s recent earnings call that they will bring down prices to help boost sales, and that prior record profit margins are likely just that, a record that won’t be seen again anytime soon.
“We will normalize our pricing. Yes, we will probably be selling the same floor plans in the future for less money than we were over the last 24 months. But it’s going to be similar to what it was two years and three years ago, because the last couple years are just going to be an outlier as far as [home] pricing goes,” Lipar said.
Ultimately, if the housing market sticks a soft landing and doesn’t crater, as some expect, that could be a boon for the sustainability of long-term housing demand and lead to a rebound in lumber prices as homebuilder activity picks back up.
Housing could get worse if a recession materializes. “If the macro forces conspire to a big job loss recession, could indeed be very bad for housing,” Simonsen said.
But for now, “even with a shrinking GDP, the American homeowner is in great shape. There is no panic selling,” Simonsen said.