How Covid-19 created bubbles, and how lack of income destroys them
Recently, the building boom in the US (and beyond) had sent the prices of raw materials skyrocketing, timber in text, so used in homes in the US. But no trend lasts forever when the market doesn't support it.
CME lumber futures fell -3.1% to $ 1,284.20 per 1,000 feet (330 meters) in planks, extending last week's first losses since January. Over the past 18 trading sessions, timber prices have come under pressure amidst signs that an unprecedented rally may have come to an end.
Citing data from the trade publication Random Lengths, CIBC analyst Hamir Patel told Bloomberg that spruce and western spruce prices fell $ 130, or -8.1%, from $ 1,470 per 1,000 feet. of plank last week, and 2 × 4 southern yellow pine lumber fell $ 92, or -6.9%, to $ 1,236 per 1,000 plank feet.
The decline is accompanied by a decline in lumber futures, which plunged into a bear market, -25%, in recent weeks, from an all-time high reached in early May of around $ 1,711 per 1,000 plank feet.
What happened? Why this decline after months of growth?
Timber prices had skyrocketed due to a mix of logistical bottlenecks, limitation of raw material production and sawmill production capacity, in the face of increased demand during the lockdown, when demand grew because there was a demand for homes in rural areas or more comfortable homes
“Record prices for softwood lumber amid a severe supply shortage appear unsustainable and could sharply correct from a level that has quadrupled the 10-year average,” Bloomberg analyst Joshua Zaret wrote this week.
What happened: Faced with a too high price of raw materials, many builders have slowed down or stopped construction projects. There was demand, but not at prices that have increased by tens of thousands of euros compared to the usual one or to the estimates already presented. So the question, suddenly how it got there, disappeared.
Representative Bob Gibbs, R-Ohio, who sits on the Environmental Subcommittee of the House Oversight Committee, told FOX Business that rising timber prices are “just one of many indicators that President Biden is failing with American workers ".
“Timber prices are a problem that has many causes, from the economic complications of the coronavirus pandemic to difficult trade issues with Canada. Biden has shown that he is unwilling or unable to address these obstacles, ”Gibbs told FOX Business.
Last week, Patel told Bloomberg that even as home renovations are easing, lumber prices could stay around $ 1,000 through 2021.
However, despite the latest adjustments, the price of timber is likely to remain high at least as long as the Fed monetarily supports economic expansion. However, this cannot continue forever, and the bubbles created, without a growth in real demand, are destined to end.
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The article How Covid-19 created bubbles, and how lack of income destroys them comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/come-il-covid-19-ha-creato-le-bolle-e-come-la-mancanza-di-reddito-le-distrugge/ on Sat, 05 Jun 2021 16:32:33 +0000.