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Lumber futures are nearing $1000 and even the cheapest contract on the market is now above the pre-pandemic record. Single-family starts and homebuilder sentiment remain buoyant, defying the usual winter slowdown that would allow lumber inventories to begin restocking. With imports from Canada on the decline, US producers are attempting to ease growing shortages by bringing new production capacity online by springtime – but with mortgage rates still below 3% and planned home renovations rising, demand is shaping up to be robust for many months to come.

Related ETF & Stocks: iShares U.S. Home Construction ETF (ITB), Weyerhaeuser Company (WY), Rayonier Inc. (RYN), PotlatchDeltic Corp (PCH), CatchMark Timber Trust (CTT)

Front month lumber futures touched a record close of $992.40 per thousand board feet this week, more than 120% higher than this time last year. As the Wall Street Journal notes, the cheapest and most distant futures, for lumber in March 2022, now start at $700 – more than the pre-pandemic record of $639.

Many engineered wood products used in new construction, such as I-joists, are in short supply, and mills are backlogged with orders well into March, according to pricing service Random Lengths.

Despite the increasing costs, homebuilders remain confident in the ongoing surge in home construction. Builder sentiment rebounded by a point this month, rising to 84, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Anything above 50 is considered positive sentiment and this most recent reading is not far off from last November’s all-time high of 90.

Of the index’s three components, CNBC notes that current sales conditions held steady at 90, and traffic of prospective buyers rose 4 points to 72. Sales expectations over the next six months was the lone laggard, slipping 3 points to 80.

Lumber production initially suffered from a miscalculation of demand by mill operators and dealers after housing starts and remodeling were weak in 2019. The expectation was that 2020 would be much of the same, especially after COVID-19 began spreading in the US and inducing mill shutdowns throughout early to mid-2020. However, even with mills ramping back up, the latest data shows demand still outstripping production. RBC analyst Paul Quinn recently noted that, although North American softwood lumber production increased by 7.2% YoY in November, consumption rose by 14.8%.

Usually, the wintertime creates a seasonal lull in homebuying activity, giving producers time to restock their inventories and prepare for primetime sales growth in the spring – but not this year…

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