Last month, I recapped 2012 and revisited what prices had done over the course of the year. I spoke extensively about the large number of increases in multi-family and single family starts. Price increases, coupled with less production, led to price appreciation throughout the course of the year. In fact, in late November and early December, prices reached highs for the year and currently show no signs of erosion. This leads us to what possibly could happen in 2013.
In a nutshell, I expect home starts to rise another 10% to 15% during the first six months of the year and then flatten out before they drift downward in the second half. Analyzing what the first six months could be, we have to look at starts and the expected supply of materials. We expect next year’s starts (annualized) to cross the million mark on a consistent basis beginning in late spring or early summer. This would mean that we will have seen an 85% increase over the past 18 months. As long as interest rates stay low, the economy keeps improving and banks keep lending, I believe this increase will happen. While I firmly believe these numbers will hold true; there are a few minor “if’s” we should consider. I do believe we will solve the national financial cliff issues shortly; no later than February. Even if we would go over this cliff (or speed bump) it will take time before it impacts the economy. More importantly, neither party wants this economy to turn sour and this fear will force parties to come to some kind of agreement.
Production will to have to keep up with demand. In the first half of 2013 mills will be in the driver’s seat and they will be able to dictate prices to a large degree. As the year progresses we should see more OSB plants come back on line (they are announcing startups now) as well as lumber mills adding shifts as logging production increases. This will help check prices in the second half of the year.
So what does this mean for you?
The 10% to 15% increase projection is significant as we are starting this year at prices much higher than last year. So plan your business and pricing accordingly. As the year goes along you should be able to see where lumber prices are going and expect a flattening and even some price relief.
Have a Merry Christmas and a Happy New Year!