In the U.S., the Federal Reserve has just raised its key policy setting interest rate, the federal funds rate, into a range from 3.00% to 3.25%. The intent is to cool inflation. …A higher interest rate regime is meant to stamp out excessive consumer spending. But it’s also known, through corresponding bumps in mortgage rates, for almost always having a detrimental effect on residential real estate demand and new home construction. This article, with the help of 14 graphs, examines the present state of housing markets in the U.S. and Canada. There are almost certainly more interest rate increases to come in both countries. …The surprising fact is that housing starts haven’t stumbled into the ditch just yet in either country. This has been despite cries of alarm being expressed from multiple quarters.
Lumber prices fell 6% on Thursday, extending their two-day decline to 10% after the Federal Reserve hiked interest rates by another 75 basis points. The aggressive interest rate hikes from the Fed have helped solidify the ongoing surge in mortgage rates, which jumped above 6% for the first time since 2008. The surge in mortgage rates have taken a significant bite out of home sales, which has in-turn led to price cuts and has dented homebuilder sentiment. “The lumber market continues to be in a state of overall malaise as buyers anticipate lower overall demand going forward. Many yards are trying to pare their inventories to minimum levels and have really no fear of price upside,” Sherwood Lumber’s director of risk management Steve Loebner said. 
If lumber was an early indicator of where prices are headed, then the central bankers who are now trying to beat back the hottest inflation since the 1980s may take heart in recent signals coming from the lumber market. A growing number of Canada’s largest producers, including Canfor and West Fraser Timber recently announced plans to scale back production in BC, citing softening demand among other factors. Both announcements tie into a multi-year trend in which B.C. lumber companies have been reinvesting their profits in new operations in the southern US. …As West Fraser said in August, “access to available timber is an increasing challenge in BC and ongoing transportation constraints have impaired the company’s ability to reliably access markets.” Canfor’s statement about softening lumber demand may signal that rising interest rates are beginning to have the desired effect of cooling demand. …Paul Quinn, RBC analyst, predicted Canfor’s announcement of curtailed production would “definitely raise prices.”
While the COVID-19 pandemic has triggered many social and economic disruptions, it has also changed working arrangements and has accelerated the shift to work from home (WFH). During the COVID-19 outbreak in the early of 2020, many businesses across the United States closed and millions of workers experienced the work from home trend out of necessity. This sudden and massive work from home experiment generated major lifestyle changes for workers, homeowners, business owners, and our communities. A new NBER working paper, “
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New U.S. home construction unexpectedly surged in August, but a decline in building permits underscores how rising interest rates are continuing to cool overall demand for housing. Housing starts climbed 12.2% last month to an annual rate of 1.575 million units, according to new Commerce Department data released on Tuesday. That’s above Refinitiv economists’ forecast for a pace of 1.445 million units. The increase stemmed from a jump in multi-family housing construction, evidence that rising borrowing costs combined with steep home prices are pushing potential homebuyers out of the market. Applications to build – which measures future construction – slowed to an annual rate of 1.52 million units, which is the lowest since June 2020. …The interest rate-sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades.
Who would have thought? It turns out hoarding toilet paper in the early days of the pandemic was a wise financial decision. If your bathroom cupboard is still stockpiled with rolls, you don’t have to feel ashamed anymore. The toilet paper shortage of 2020 was an early warning sign of the large supply-chain disruptions that the global economy was about to suffer. Now wholesale tissue paper prices are surging to an all-time high — a new crisis that indicates inflationary pressures are still building up. The toilet-paper industry is a microcosm of the much larger, energy-intensive manufacturing sector, where production costs are continuing to skyrocket in line with soaring wholesale energy prices. It’s the same issue across European industrial commodities — from glass, ceramics and synthetic fibres to aluminum, cement, fertilizer and dozens of other daily-life goods. …As is true for many manufacturers, the core of the problem for toilet paper is the cost of energy.
Toronto-based Tricon Residential, which oversees a portfolio of more than 33,000 single-family rental homes in the United States and Canada, is once again teaming up with the Arizona State Retirement System (ASRS) to invest $500 million to build 2,500 single-family rentals in the U.S. Sun Belt. This latest deal represents the second joint venture between Tricon and ASRS. In 2019, they teamed up to make a $450 million equity commitment to develop 2,000 new “build-for-rent” homes. “The United States has a housing crisis that cannot be ignored,” said Gary Berman, CEO. “Americans are facing a shortage of nearly four million homes, and families are struggling to find and afford quality housing. …The surge in build-for-rent single-family housing is coming at a time when there has been a sharp decline overall in single-family home construction according to NAHB.
Lumber prices
The price of wood pellets is soaring in France due to a growing shortage of the wood-burning stove and pellet stove fuel as people prepare early for winter and more households entering the wood pellet market. People who rely on the fuel may be facing an expensive winter if the trend continues, with stocks currently seeing “a risk of tension”. Propellet, the national wood pellet professionals group l’Association nationale des professionnels du chauffage aux granulés de bois, said that although “we are not yet in a total shortage situation, we are seeing a situation at risk of tension”. Demand rose earlier than usual this year, ahead of the start of the 2022 production. …Another factor is that more people are entering the pellet market every year. 
FINLAND — In July 2022, a total of 3.2 million m3 of roundwood was harvested for industrial use in Finland. This removal volume was down 5% from the previous year and 1% from the five-year July average, according to the Natural Resources Institute Finland (Luke). Sawlog removals were 1.3 million and pulpwood removals 1.9 million m3. Compared with the average in July in the previous five years, sawlog removals were same level and pulpwood removals 2% lower. Industrial roundwood removals from non-industrial private forests were 2.5 million m3, down by 7% from the year before.
The U.S. exported 649,185.7 metric tons of wood pellets in July, down from 832,092.2 metric tons the previous month, but up when compared to the 546,519.1 metric tons exported in July 2021, according to data released by the USDA Foreign Agricultural Service on Sept. 7. The U.S. exported wood pellets to more than a dozen countries in July. The U.K. was the top destination for U.S. wood pellet exports, at 345,802.4 metric tons, followed by the Netherland at 166,974.5 metric tons and Japan at 45,102 metric tons. …Total wood pellet exports for the first seven months of 2022 reached nearly 4.97 million metric tons at a value of $851.09 million, compared to 4.12 million metric tons exported during the same period of last year at a value of $596.7 million.
As the winter approaches, new home construction tends to decline, weighing on lumber demand. There is an element of seasonality in the lumber market as it reached the $448 low in August 2021 with the fall and winter on the horizon. However, in 2022, the upcoming offseason faces rising interest rates. At the end of 2021, thirty-year fixed-rate mortgage rates were below the 3% level, and they recently were over 6%. …As the central bank’s policies have consistently been reactive instead of proactive, they run the risk of suddenly reversing to a more dovish stance if GDP continues to decline. The Fed continues to utter hawkish squawks, but the dovish coos could be on the horizon. Lumber prices will likely continue to be highly sensitive to interest rates and could provide signals for other commodity prices. …The trend remains lower in early September, but wood prices will follow the economic data over the coming months.