Lumber Is Crashing – Again

Lumber is down another 3% today.  It’s down nearly 8% in three trading days.  It’s down 33% since last March – click to enlarge:

Lumber1

The Dow Jones Home Construction Index (DJUSHB) is barely green despite the rip-roaring 26-point, 1.3% gallop higher by the S&P 500.   The DJUSHB initially bounced with SPX, dropped after the disappointing builder “sentiment” index.  After it dropped the HFT algos tried to save the homebuilders with sharp bounce back into correlation with the SPX.  As I write this, the DJUSHB is now negative on the day.

But alas, fundamentals re-assumed control of the homebuilder sector.  I use the DJUSHB because it has the highest concentration of homebuilder stocks out of any of the indices/ETFs.   It also has a healthy dose of companies which supply new homebuilding activity.   If the DJUSHB can not move higher on a day like today in which insanity is driving stocks, it means something is very broken with the fundamentals underlying the sector.

This graph below shows today’s 1-minute trading action of the DJUSHB vs. the S&P 500 – click to enlarge:

DJUSHB

I have been trying to expose the truth about this for nearly two years now.  Unit home sales volume has been declining on average since mid-2013.  Lumber is the tell-tale.   If the price of lumber is plunging like this, it means that demand from new homebuilders and suppliers to new homebuilders is plunging (suppliers meaning Home Depot, Lowes, Lumber Liquidators).

The homebuilder stocks are a phenomenal short-sell right now.  Clearly the Fed/Government’s attempt to juice the sector has failed.  Intererst rates are zero, there’ s now zero down payment mortgages available, credit standards have been significantly lowered, etc.   Homebuilder Research Reports.

You will make a lot of money shorting this sector is you are patient and “leg” into your positions.   My reports have a section which offers ideas for doing that.

 

5 thoughts on “Lumber Is Crashing – Again

  1. Dave –
    Just being the devil’s advocate here and me being an architect – in the past when lumber price was high builders would switch to metal studs or in some cases CMU as the demand for these materials was lower than for lumber.
    I understand that the greater inventory of home building is framed in lumber but is there something else to the drop in lumber price that may indicate some other material being used. Just wondering.

  2. Right, and with interest rates already rising on the 30 year bond, the other (next) shoe will drop tanking real estate prices. You can expect a 90% drop in the next 7 or so years in most assets as the Greater Depression unfolds. Delwyn Lounsbury – the Deflation Guru

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