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December 2014

2014 Year in Review

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John-Colley-Final-1024x10242014 was an interesting year to say the least.  Futures lumber pricing started the year on the high side as many experts predicted an increase in housing starts.  As most of us are aware, our industry did not meet predictions due in large part to a harsh winter and labor constraints.  These issues, combined with others, led to future pricing bottoming in June before making a rebound.  Prices held steady throughout the remainder of the year with minor fluctuations.

For most of my career I have seen a seasonal upward pricing trend in the fall.  This year we did not experience much of a  normal autumn price correction and I believe a few factors could attribute to why we did not.  Pricing wasn’t really favorable for China to step in heavy, Canadian home starts are down, the exchange rate between the United States and Canada turned more favorable for the Canadians to export wood to the U.S, and the U.S. home starts didn’t quite pick up as robustly as desired either.

Other offerings such as 2×6 started the year trading under 2×4’s but ended the year trading at a premium to 2×4’s.  Studs have been mixed and started the year well above the 2×4 and 2×6 composites with 9’ pulling much higher premiums.  Wide dimensional lumber pricing varied between region, species, and mode of freight.  Freight costs are making a bigger contribution to the overall price.

OSB prices inched up and down as production outpaced demand.  Fluctuations with OSB pricing were more related to production issues than demand issues.  I-Joist, LVL’s, LSL’s, and Rim board manufacturers all took increases last year and freight once again proved be a factor.

As we turn our attention to 2015 I think we will experience close to an estimated 1.05 million housing starts.  To me this is a modest number and I feel both labor issues and mortgage rates will continue to effect the entire industry regardless if we are underbuilding or not.  The implications to the end of Quantitative Easing are still creating uncertainty in the financial markets and the impactions can still be debated. A couple takeaways regarding mortgages next year:

  • Mortgage companies are starting to understand Energy Efficient homes cost more to build and less to operate.  They are now offering Energy Efficient Mortgages which increase the amount a homeowner can borrow based on the cost of the improvement and the return on investment.  I feel this is a step in the right direction, but many appraisers are slow to agree.
  • The remodeling sector may take a while to come back simply from an equity and a mortgage rate standpoint.  In my experience it seems much of that business stems from homeowners refinancing, taking out some equity, and then using that equity for improvements.  If homeowners don’t have equity, or if their mortgage rates tick up, I think that sector of the market will be light.
  • Fannie Mae has introduced a program to allow first time home buyers to finance a home with a lower down payment.  It was rumored the first time home buyer would still need PMI insurance but the key is the industry recognizes an absence of first time home buyers and is working to resolve that.

Price wise, I don’t see any major changes other than seasonal fluctuations going forward or price corrections between mill offerings.  Mills tend to try and cut to the widths and lengths that give them the best return.  When there isn’t enough of something the price goes up but when they overproduce an item the price falls.  I think we will have to see a significant number in housing starts or significant decrease in supply to really push pricing upwards.  For at least the first quarter I would continue to sell with confidence that pricing will remain stable.