By Ryan Dezember 

Builders are hammering away at more new houses than at any time since before last decade's foreclosure crisis, and the construction boom is driving up lumber prices.

Lumber futures are up more than a third from lows reached last June, when bad building weather and overstocked yards caused an unseasonable slump. On Monday, futures for March delivery closed at $422.30 per 1,000 board feet on the Chicago Mercantile Exchange. Wood for May delivery was at $423.

Though relatively high, current prices are still well below a peak of $639 reached in May 2018. The surge to that historic level was spurred by wood-boring beetles, wildfires and tariffs on Canadian imports. Home builders groused about thousands of dollars per house in added costs.

They've sung a different tune since. Home-builder stocks outperformed the broader market last year en route to new highs, lifted by low mortgage rates that enticed home buyers and a yearlong tumble in lumber prices.

In December, U.S. housing starts surpassed a seasonally adjusted annual rate of 1.6 million. That is their highest level since December 2006, just months before the real-estate market unraveled. Residential building permits are being issued at the highest rate since 2007. Mild winter weather has extended the building season in much of the country.

Shares of D.R. Horton Inc., the country's largest home builder by the number sold, reached a new high last week after the company said it closed on sales of nearly 13,000 houses during the three months ended Dec. 31, which was 13% more than a year earlier. Orders during the period were up 19%, to $3.9 billion worth of houses. The company's houses on average sell for just under $300,000.

PulteGroup Inc., the third-biggest home builder, said its fourth-quarter orders were a third higher. Shares of Pulte, which sells homes for an average price of about $430,000, are up 65% over the past year. Rivals NVR Inc., the parent company of Ryan Homes, and Meritage Homes Corp. have also reported double-digit growth in orders.

All that construction has boosted demand for wood products.

The widely cited Random Lengths Framing Lumber Composite Price ended January with a seventh consecutive weekly gain, to $388 per thousand board feet. Plywood prices have been rising as well, Random Lengths, a trade publication, reported Friday.

Raymond James analysts recently recommended that investors bulk up on shares of timber businesses. "Our team's housing analyst believes the home builders are poised to enter 2020 with the strongest supply/demand fundamentals seen in the 10-year housing recovery to date," they wrote in a note to clients.

The analysts said they expect wood prices to continue to climb given how much supply has been taken off the market over the last year. Canadian mills last year curtailed 2 billion board feet in annual lumber production after beetles and wildfires drove up log costs and tariffs cut into mills' margins.

On Monday, lumber prices declined in late trading after the Canadian government said U.S. trade officials had indicated that tariffs on exports into the U.S could be significantly reduced later this year.

Shares of the largest U.S. timber company, Weyerhaeuser Co., are up about 5.5% over the last year but still a quarter below the highs they hit in June 2018 when lumber fetched record prices.

The Seattle company on Friday said it lost $76 million in 2019, compared with a $748 million profit the year before. Some of Weyerhaeuser's problems last year stemmed from the trade dispute with China, which caused the company to reduce log exports from the U.S. Southeast, as well as a flood of cheap competition from European spruce logs salvaged after beetle attacks.

Chief Executive Devin Stockfish said while uncertainty would remain around its China business, the U.S. housing market was strong enough to lift wood prices.

"Although pricing for many of our commodity products remains soft, we're optimistic that we will see continued improvement as we head into the 2020 building season," he said.

Marty Juravsky, finance chief of big Canadian producer Interfor Corp., told a gathering of investors hosted last week by the Canadian Imperial Bank of Commerce that lumber prices should be $50 higher given supplies and the booming housing market.

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Write to Ryan Dezember at ryan.dezember@wsj.com

 

(END) Dow Jones Newswires

February 04, 2020 08:14 ET (13:14 GMT)

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