Housing’s Business Model

My blogpost in early 2013 pointed to a news story about Blackstone, the largest private real estate owner in the United States. It was reported that in 2012 the company had begun spending $100 million a week buying houses. By 2013, those purchases had accelerated to acquire more than $2.5 billion in rental properties. See: Accelerated Purchases and related post All in.. On the U.S. Housing Recovery.

It’s interesting to learn this week Blackstone have in total amassed about 50,000 rental houses in the past four years. Housing as a commodity. But having first developed and adapted strategies as a buyer/landlord, the company is now adapting to changed market circumstances to become a seller. We’re told the company is beginning to sell “properties that have soared in value or no longer fit their business models”. Under a program called “Resident First Look”, renters get first look, enabling Blackstone “to benefit from having its own pool of ready buyers who are constrained by a market starved for affordable homes”.

On a related note, it’s revealing to see this list of price-to-rent ratios for American cities. According to Investopedia, a price-to-rent ratio of 1 to 15 indicates it’s much better to buy than rent, 16-20 suggests it’s typically better to rent than buy, and 21 or more means it’s much better to rent than buy. For example, with ratios below the 19.2 national average, a number of Texas markets are presently very favorable to homebuyers.

Observers of the bewildering real estate picture, in especially hotspots like Toronto and Vancouver (where the price-to-rent ratio is 55 in the east of the city and 72 on the westside), might be wondering how these patterns of housing dynamics could play out down the road in Canada.

Happy Birthday

So what’s to celebrate this week? Harderblog is five years old! What’s changed in five years? Media tell us the world has changed. The lumber business continues to change. Markets change. We’re learning that climate changes.

One of many significant changes captured in the blog archives is the bottoming/gradual recovery of the U.S. housing market. In February 2011, the seasonally-adjusted annual rate of housing starts in the United States was just 518,000 and the Random Lengths Framing Lumber Composite Price averaged $296. Today, starts have doubled while the Composite Price is barely 8% higher at $320. As one American dealer recently noted during our conversation re. lumber prices, “What is this, the 1950’s?!” If a new Softwood Lumber Agreement is negotiated before October, is it any wonder it will be a more restrictive deal than the last one and it won’t be good news for Canada?

Christmas 2015-001

Dec 25, 2015

Probably some of the most prominent changes I’ve experienced involve the fact that suddenly not only do I have the daily pleasure of fulfilling lumber requirements of valued customers, but also, I’m into negotiating the daily whims of an active six year-old daughter – with a four-year-old encore commanding equal time most days. On some days no doubt the opportunities awaiting attention at the office seem like welcome respite.. until I’m back home at night, where a small daughter’s smile wins me over.. and over.. reaffirming reality that fives years has gone by in a flash!

HB5ann

Push and Pull

Amid the uncertainty of all that’s shaping lumber markets these days, today recall Forest Economic Advisors (FEA) analyst Paul Jannke’s presentation at the LMC Expo in Philadelphia back in November. Toward the end of his decidedly bearish forecast for 2016, Jannke described home sales data as the key stat to watch when gauging future homebuilding activity. Today, we learned U.S. single-family home sales surged almost 11% in December. According to CNBC, it’s “the latest indication that the housing sector remains on firmer footing despite a massive stock market sell-off and slowing economic growth.”

Grass Huts for Homeless?

A story in this morning’s Maui News reports that Hawaiian lawmakers are considering a unique solution to the housing crisis there. A bill will be introduced in upcoming legislative session that would set aside land to build thatched homes aimed at alleviating homelessness. Senator Chun Oakland said “There is an interest in capturing some of the traditional ways of living among our people here in Hawaii.”

“This doesn’t make any sense,” said Shannon Wood, co-founder of the Windward Ahupuaa Alliance, a non-profit organization that advocates for smart growth solutions. “This is 2016, not 1616.” Wood asked whether there would be toilets in the huts.  Senator Oakland said that all details have not been worked out.
HT: Ernie Harder

Oil and Housing

On December 30, 2014 we asked Will $55 oil help or hinder housing starts next year? The answer may not be entirely clear on this as year-end activity in the U.S. in particular finds lumber market activity brisk with upbeat November housing reports. Builders are reportedly stepping up home construction broadly across the U.S., suggesting the housing market will help anchor the economy amid global turbulence and projected four more interest rate hikes next year. So far the winter weather that has known to shut down building, in the lead-up to Christmas in past seasons, has not played a large part. Builders broke ground on 1.173 million units, when calculated at a yearly rate, in November, up 10.5% from a month earlier, the Commerce Department said Wednesday. Construction climbed at roughly the same pace in the first 11 months of the year compared with the same period in 2014.   

Getting Started on Housing Starts

Since when does data on building chicken barns legitimately become part of housing starts analysis? In today’s Lumber Market Report, Random Lengths drew attention to what seemed like an unusual point in noting that “4×6-12’s on the westside got a boost from strong sales to builders of chicken houses”. Perhaps it doesn’t matter. Certainly the roosters don’t care. So why should we?

There’s interesting stuff happening in housing construction in many areas that makes one wonder about the collection of data on starts. For one, does size matter? As part of Vancouver’s Eco Density Initiative, Laneway Infill Housing aims to increase density without disrupting neighborhood building patterns. No doubt the building materials used in construction of one of Vancouver’s many new monster homes is equivalent to five or six laneway houses or two dozen chicken houses. This morning The Vancouver Sun reports Hummingbird Micro Homes selling up to 31 housing starts at 300 square feet per home. Are these houses included?

The multi-family trends in ‘housing construction’ south of the border no doubt influence degree to which particular starts impact use of lumber, as traders warily scrutinize activity for June. Meanwhile, a recent string of local articles bemoan the sluggish lumber recovery in B.C. It has some wondering if it’s time industry focused a little less on what we can’t control (housing starts) and a little more on what we can (lumber production).

lee-lorenz-but-enough-about-the-dollar-let-s-talk-about-me-new-yorker-cartoon

False Creek Sawmills

False Creek looking east from Granville Bridge 1928

False Creek – 1928

Mills and Log Booms on False Creek 1936

1936

In A Short History of False Creek, Sam Sullivan writes: “The first Granville Bridge was built in 1889 connecting the south and north shores and industry, mills and manufacturing began to encircle the Creek. The CPR installed massive rail yards centred around the now refurbished Roundhouse, and to
the north residents began to settle close to the yards where they worked. These men used to work on the CPR in the Fraser Canyon town of Yale and when they relocated to False Creek, the neighbourhood of ‘Yaletown’ was born. By 1891, six of Vancouver’s eight saw mills were on False Creek.”

Living in Yaletown today, it’s hard to believe False Creek was once an industrial waterway lined with as many as 17 sawmills. When Vancouver’s first five-alarm fire destroyed the B.C. Forest Products plant and lumber storage facility on the south shore of False Creek in 1960, it marked the end of an era. Reportedly 200 million board feet of lumber (equivalent today to an 8-hour shift at West Fraser 🙂 ) was destroyed in the fire. A “False Creek Sawmill” search at The City of Vancouver Archives website this week produced over 89,000 results. The old images posted here are but a sample, interspersed with some pictures from a recent stroll.

~Green Shoots~

The Wall Street Journal reports “investors in the lumber market are the latest to be whipsawed by the struggle between two forces acting around the globe: stubbornly sluggish economic growth and expansive central-bank stimulus aimed at jump-starting business activity.” Five bullish takeaways from the article that suggest Lumber’s Set to Build on Its Rally:

  1. The 20.2% jump in new-home construction in April is the biggest monthly gain in percentage terms since February 1991
  2. Lumber futures have rebounded 15% since falling to a three-year low last week
  3. Many countries are cutting interest rates/buying bonds to ease financial conditions and support growth
  4. China has reduced rates three times in the last six months – Chinese demand likely to pick up in the coming months as lower borrowing costs revive home construction
  5. Building permits in the U.S. held steady even when housing starts were weak earlier this year (“all the projects delayed over winter will get done, in addition to everything else that’s scheduled”).