This page has been archived and commenting is disabled.

Builders Beggar Belief As Lumber Liquidation Looms

Tyler Durden's picture




 

With lumber prices plunging to fresh 3 year lows, the divergence between homebuilders and the most economically-sensitive commodity is starting to suggest a rather scary case of deja vu all over again.

 

4-Step-Deja-Vu...

Chart: Bloomberg

Step 1: Homebuilders rally but physical lumber supply limited sparks boom in futures prices... mills restarted, mal-investment invested, supply surge, demand met...

Step 2: Same again... but this time there is already supply so the brief futures spike in prices fades as the market realizes that the move in builders was not really reflective of actual development demand...

Step 3: Massive over-supply meets under-demand driving lumber prices to collapse... builder remain buoyed by financial-engineering, Fedspeak, and algos hair-triggers on NAHB surveys...

Step 4: Homebuilder catch up to the ugly reality that there is no recovery...

*  *  *

As @Not_Jim_Cramer shows, this move in Lumber suggests forward returns for homebuilders will not be as exuberant...

 

and that macro-economic data will greatly disappoint...

 

*  *  *

Of course, it could be different this time... just the weather... Or Not!

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 04/20/2015 - 18:30 | 6012572 Pure Evil
Pure Evil's picture

You didn't build that!

Mon, 04/20/2015 - 18:34 | 6012585 MarketAnarchist
MarketAnarchist's picture

There is a definite oversupply. I mean, I have wood right now myself

Mon, 04/20/2015 - 18:34 | 6012587 TahoeBilly2012
TahoeBilly2012's picture

When an ounce of silver buys 10 sheets of plywood I will start framing up.

Mon, 04/20/2015 - 19:09 | 6012671 BoredRoom
BoredRoom's picture

So you'll be sleeping in the Tahoe for quite some time to come then. Silver has a tendency to lose or gain value very relative to other commodities. i.e. two silver dimes would buy you a gallon of gas in 1948 just as they will today.

Mon, 04/20/2015 - 22:22 | 6013278 hairball48
hairball48's picture

@BoredRoom

And that's why I own silver, the metal, including lots of junk silver dimes :)

Mon, 04/20/2015 - 23:19 | 6013432 golden torch
golden torch's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com

Mon, 04/20/2015 - 18:31 | 6012574 Stuck on Zero
Stuck on Zero's picture

That lumber is being converted to paper pulp, rolled into paper, and printed as fresshly minted dollar bills.  Bully.

Mon, 04/20/2015 - 19:17 | 6012694 DeadFred
DeadFred's picture

You can't solve this economic problem by breaking a bunch of windows.

Mon, 04/20/2015 - 18:33 | 6012581 fastrakn1
fastrakn1's picture

As a homebuilder I am loving it here in Texas!

What housing decline?

Mon, 04/20/2015 - 18:41 | 6012608 Pure Evil
Pure Evil's picture

The only growth in my area of Florida is all the For Sale signs going up.

Mon, 04/20/2015 - 18:47 | 6012617 fastrakn1
fastrakn1's picture

You are welcome in Texas....

Mon, 04/20/2015 - 18:56 | 6012642 Kaiser Sousa
Kaiser Sousa's picture

yeah, i hear the Unicorns r plentifull out there...

 

Mon, 04/20/2015 - 20:00 | 6012850 fastrakn1
fastrakn1's picture

No unicorns...just the best housing market in the US...for many reasons....

Mon, 04/20/2015 - 20:59 | 6013059 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

Yeah right, eh, Chinese oligarchs and their families all want to buy a house right next to George W. Bush. Unfortunately for Texas, few but the Chinese oligarchs can afford to take out a mortgage because the neocons shipped all the full time jobs to China, Japan, and Mexico. Are the Mexican wetbacks buying up all the housing in Texas with their high paying full time jobs with benefits and pensions for all? The Ponzi broke Texas just as it broke mainstreet USA, fastrakin1.

Mon, 04/20/2015 - 21:42 | 6013173 Abbie Normal
Abbie Normal's picture

Wile E. Coyote just hasn't bothered to look down and realize he's already off the cliff yet...

Mon, 04/20/2015 - 18:35 | 6012592 disabledvet
disabledvet's picture

Problem isn't lumber but housing.

 

You can pay your 300 grand for your Hinckley Yacht still.

 

Don't think Maine sells them for anything less...nor do they offer "volume discounts."  Everything else is "the Government Rate."

Mon, 04/20/2015 - 18:39 | 6012606 SheepDog-One
SheepDog-One's picture

Lumber to build dwellings? How gauche....we new elites build our mansions from only the finest sun bleached peasant bones.

Mon, 04/20/2015 - 18:45 | 6012613 Pure Evil
Pure Evil's picture

How gauch, garish, and ghoulish of you.

Mon, 04/20/2015 - 19:12 | 6012682 BoredRoom
BoredRoom's picture

Enough of your garrulous garbled gibberish

Mon, 04/20/2015 - 18:45 | 6012614 kaiserhoff
kaiserhoff's picture

Hmmm.  You could well be right.

I thought Soccer Moms build with Legos.

Mon, 04/20/2015 - 18:49 | 6012620 MATA HAIRY
MATA HAIRY's picture

chinese demand is dropping?

Mon, 04/20/2015 - 19:11 | 6012679 frivolous_spend...
frivolous_spendthrift's picture

TIMBER !!!! ....  Lumber is the real canary in the economic collapse coalmine... If you don't have firm wood, things ain't so good. 

Mon, 04/20/2015 - 19:26 | 6012723 Salah
Salah's picture

Wondering when this awful chart would get noticed....have a bank in Myrtle Beach SC (Feds have shut down 80% of our community competition) ....came in ('09) and said, "no more speculative resort loans on real estate" (fuck, it's a resort)....still no real let-up since then (OK, maybe a teeny-weenie bit).

Kids, and my kids' friends....all too scared to form families, just chicken-shit grateful to have any kind of job.  Who do these Fed fucks think buys lumber in bulk?  the fucking Chinese?  I'll bet nobody at any Fed bank can even spell "subdivision".

 

Mon, 04/20/2015 - 20:27 | 6012951 Mike in GA
Mike in GA's picture

That's another data point that favors the big banks...you know they weren't restricted like the community banks by federal regulators. Two sets of rules - one for the big boys and one for flyover country.

Mon, 04/20/2015 - 19:27 | 6012724 Thirtyseven
Thirtyseven's picture

The only houses I see going up are those nasty Pulte/Ryan/Lennar/etc. spek townhouses that they build for 100k and want to sell for 400k (in my area) on one end of the spectrum enormous custom homes for the recently rich on the other.

Mon, 04/20/2015 - 19:28 | 6012731 RaceToTheBottom
RaceToTheBottom's picture

Count the woodies.

Mon, 04/20/2015 - 19:34 | 6012757 booboo
booboo's picture

I have 4 under contract and 3 out of the ground and as nervous as a dog shiting razor blades. What worries me
More than anything is the banks, those fucking criminals will just stop funding progress payments and walk. Who gives a fuck if a stud is a buck if you can't get paid back.

Mon, 04/20/2015 - 19:48 | 6012810 Thirtyseven
Thirtyseven's picture

Sounds like one 8.5k square footer we were working on recently.  GC was scared out of his mind when the bank threatened to foreclose if final inspections and occupancy permits weren't completed by certain dates.  Of course 99% of it was the female homeowner making changes left and right, then right and left again which drug the whole thing out an extra six months (at least).

One does not simply crunch an 8,500sq.ft. custom built, high end, home into a timeline like that.  So you know what he did?  He fired the newly hired incompetent site supervisor and managed it himself (for once).  It's a shame he lost his previous guy (fantastic!!!) to an out of state move for family reasons.

Mon, 04/20/2015 - 21:36 | 6013158 willwork4food
willwork4food's picture

Jesus. 8.5 sf? What the fuck do they do there, entertain the military?

Mon, 04/20/2015 - 21:47 | 6013187 Abbie Normal
Abbie Normal's picture

Toured one of those recently, a 3-story monstrosity with its own elevator.  Each of the five bedrooms not only has its own bathroom, but also a separate sitting area for entertaining.  Essentially, five master bdrm suites inside one dwelling.

Mon, 04/20/2015 - 21:55 | 6013207 willwork4food
willwork4food's picture

Sounds like the GC is the owner/funder, or the owner/funder is putting screws to the GC.  Bad place to be in for the GC.He should have known better.But then you take your risks, just like we all do in the trades.

Mon, 04/20/2015 - 20:04 | 6012867 fastrakn1
fastrakn1's picture

"What worries me
More than anything is the banks"

Save up cash like a mad man over the next few years and then fund with your own cash. That's what I did after the crash in 08. I had enough of banks for spec financing after that.

You might not grow as big using your own funds, but you'll sleep at night....

Mon, 04/20/2015 - 20:57 | 6013050 booboo
booboo's picture

"Save up cash like a mad man over the next few years and then fund with your own cash"

 

I can do that now, why in the fuck would I risk all of my own money on an unsold spec when I can have a secured customer finance it????? The margins are the same. My concern is losing a little in a crash scenerio, but you go get em tiger.

 

Mon, 04/20/2015 - 19:43 | 6012789 Wave-Tech
Wave-Tech's picture

I'm gettin' a woody

Mon, 04/20/2015 - 19:56 | 6012836 Quantum Nucleonics
Quantum Nucleonics's picture

This article is flawed in the sense that since the mid 2000's, the marginal source of demand for US lumber has shifted from being housing to being export to China, mainly as a packaging material.  What these charts are telling you is that the Chinese economy is falling off a cliff.

Mon, 04/20/2015 - 20:00 | 6012852 Thirtyseven
Thirtyseven's picture

Any additional sources?  I'd like to read up on that.

Mon, 04/20/2015 - 20:26 | 6012949 MathWins
MathWins's picture

No one in the building industry that I know of saw the downfall in lumber futures coming.  It started in January, and prices have dived almost every week since then. I am kicking myself for buying in January, and buying again in February. Some of it is over-supply at the mills, but at this point it is evident it is more than that.  Toss in the fact that China did not move in when the prices were falling, unlike previous times when they would come in at lows and send the lumber market back up.

If suppliers aren't buying lumber in mid-March, early April, and China hasn't bought in the down market, that there is what you call a canary in the coal mine warning. 

Mon, 04/20/2015 - 20:39 | 6012998 fastrakn1
fastrakn1's picture

China is on the brink of a real estate crash, so they won't be buying....

Mon, 04/20/2015 - 20:48 | 6013030 MathWins
MathWins's picture

Yup, and I suspect the lumber mills were counting on them!

Mon, 04/20/2015 - 20:55 | 6013045 BenGazisurvivor
BenGazisurvivor's picture

I've been framing 9000sq footers and up castles in Georgia for the last 4 years like a freight train and have no profit to show for it because workers comp , liability , taxes and payroll and the fact that Builders beat you down on price because they can get Sancho for 20K less and as Builders say " you can fix a lot of f%#kups furr 20k

Mon, 04/20/2015 - 21:12 | 6013101 NoPension
NoPension's picture

Trying to follow the " White Guy Rules" in construction is a fast way to go broke.
The undocumented democrat invasion has ruined the pricing structure of our industry.
But then again, it's just stupid manual labor. /s/

Mon, 04/20/2015 - 22:02 | 6013228 willwork4food
willwork4food's picture

No offense intended to our esteemed ZH members of color but I just did a bid on a 4000sf 2 car garage brick two story home in an elite subdivision around here, owned by a black family. The house sold a few years ago for mid 500k, which is ALOT around here.

Yo, how many 7/11s did you black mother fuckers roll to get nice digs like this word?bama been good fo yo hood?

Of course I just gave a higher price since I freaking KNEW they would get anal on my ass with the work she needed done.

Mon, 04/20/2015 - 22:54 | 6013372 Bunga Bunga
Bunga Bunga's picture

Lumber, that's so 2004. They make the composite beams from Federal Reserve notes these days.

Tue, 04/21/2015 - 18:20 | 6016233 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

who needs lumber when you live.....

in a van , down by the river!

Do NOT follow this link or you will be banned from the site!