Bottlenecks

Reality Check report today suggests there are “growing doubts in the lumber market that U.S. housing starts will hit the widely forecast 1.1 million level for 2014 because construction has effectively been on hold since the start of the year.” While many of the talking points (transportation bottlenecks, stagnant prices, etc.) are familiar in the report, there are a couple of interesting outtakes:

  1. Bob Berg, lumber economist at RISI, suggests housing starts are actually in better shape than the latest data would suggest. The December data topped one million despite poor weather, and was revised up in February, says Berg. He argues that January’s data (909,000 starts) should not be taken as a true indication of demand because it is distorted by a seasonal adjustment factor that is designed for average winter conditions rather than the severe season that is now ending: “I think we have probably already broken the one million mark.”
  2. Shawn Church, editor at Random Lengths, submits that with more people moving into the cities and away from suburbs, long-term demand for lumber could be cut by an increase in the construction of multifamily homes at the expense of single-family homes. We’re told a typical multifamily unit uses only about one-third the amount of lumber as a typical single-family home. Church suggests that with multifamily construction taking an increasing share of overall housing starts, the closely watched annual rate takes on a different meaning for the lumber industry than it did a few years ago: “1.1 million units is not 100% akin to 1.1 million units five or six years ago.”

February U.S. starts data is scheduled to be released tomorrow morning.

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