Still Summer..

August 23, 2016 § Leave a comment

Its been said that western lumber traders who go to the Prairies for a late summer vacation travel against the grain. For this trader, it’s the generous hospitality of the Canadian Maritimes that beckons before summer expires. I’m told I’ll know I’m in the Maritimes when someone in a building supplies store offers assistance and they don’t even work there. I’m looking forward to boarding the red-eye out of Vancouver tonight, and getting into the vacation spirit with extended family in New Brunswick, where they say a vacation means going anywhere south of Saint John for the weekend.

Summer Surprise

August 15, 2016 § 1 Comment

A number of forest analysts were projecting that while we are in midst of a long period of strengthening lumber markets, prices could fade this summer due to increasing production on both sides of the border. The 20% jump year-over-year in U.S. housing starts experienced in Q1 was widely explained by the mild winter compared to 2015. While no one projects another 20% jump in starts this year, homebuilding activity continues to grind forward. Demand for lumber has been surprisingly strong through mid-August. Notably, the Framing Lumber Composite Price is up almost 20% since the Softwood Lumber Agreement expired last October.

The positive correlation illustrated below suggests the “surge” in cross-border shipments during the standstill period to date is largely demand-driven. The chart plots B.C. softwood exports to the U.S. per BCStats vs. the Framing Lumber Composite Price by month per Random Lengths (most recent data for softwood shipments is June; the Composite Price had climbed to $369 by the end of last week).

Export Vol vs Composite Price (2)

UBC Brock Commons

August 5, 2016 § 1 Comment

Updated August 10, 2016: Video of the final panel, flown into place August 9, 2016.

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The following images offer beautiful hi-res peeks at construction of the towering 18-storey student residence at UBC. One of the tallest wood buildings in the world, Brock Commons will house 404 students in 272 studios and 33 four-bedroom units, and feature study and social gathering spaces. The images are posted with permission from Leda Chahim, Government Affairs Director, Forterra.

I look forward to learning more about the UBC Brock Commons project, mass timber solutions, and new opportunities for dimension lumber upon scheduled visit in September with Oscar Faoro, wood-WORKS Project Leader, Tall Wood Structures Initiative, at the Tall Wood Building Education Centre.

15% Cooling RE Tax

July 27, 2016 § Leave a comment

From early reports, BC’s new tax for foreign buyers effective August 2nd sent a chill through the real estate industry on many levels. Government data this week indicates that from June 30 to July 14, foreign buyers accounted for 15% of all real estate sales in Metro Vancouver. So it makes sense that imposition of the tax would tend to cool the overheated market. Still to be determined though is the extent to which wider ripples might be felt in outlying areas. At the same time concerns are reportedly being expressed over clarification of imposition of the tax on contracts that are works in process.

It is also a natural progression of the underlying asset, in this case real estate, which has become too expensive for the consumer to buy. In a competitive system, people will find creative ways to finance the boom. For it to continue, they must find ways to financially engineer it. All seems good during the boom times, then something, somewhere, comes out of left field, and the balloon gets pricked, never to reinflate in that manner again. Everything that seemed so sane, all of a sudden seems so totally insane. As Warren Buffett says: “You don’t know who’s swimming naked till the tide goes out.” For now, all is good in fairy-tale land, but this level of speculation has the ability to destroy the dreams of people for the next 20 years.

Vancouver real estate recently broke all records for volume. People can’t get enough. This is yet another necessary bubble component. Volumes are always highest at the top, never at the bottom. The panic to get in creates a gaping hole of demand in the future. For instance, let’s say over the next five years 100,000 people would normally buy real estate based on their family needs and other factors. The great euphoria and subsequent price rise, however, sucks that demand into this year, and it can be seen readily with today’s high volumes and skyrocketing prices. Who’s left to buy two years out? There has already been a massive flight of capital out of China of over $1 trillion. Will that continue endlessly? Of course not, the Chinese government will stop that at some point, leaving the locals of Vancouver and eastern Australian cities holding the bag.
– Thompson, Bob The Anatomy of a Housing BubbleMacleans Magazine. 21 May 2016

Making Trade Great Again?

July 20, 2016 § Leave a comment

Amid revved-up rhetoric of U.S. election season comes more news from the U.S. Lumber Coalition that hints of negotiation strategies for any SLA down the road. A press release from the coalition yesterday suggests a hybrid of quota and export taxes, arguing that any deal with Canada must:

  • maintain Canadian exports at or below an agreed U.S. market share
  • establish border measures that are effective in all market situations.

A July 17th industry update from CIBC Institutional Equity Research projected that “the next SLA will resemble the structure Canada proposed to the United States on June 21, 2016, with Option A (B.C./Alberta) duties ranging up to 25% (vs. the 2006 SLA’s maximum of 15%), and lower U.S. market share constraints for Canadian mills.”

Further to CIBC’s May 16th update projecting preliminary duties as early as Feb/Mar 2017, CIBC explains lumber equities trading today around three-year lows “the market pricing in a long multi-year trade battle with very limited pass-through of the cost of duties to consumers.”

Here in B.C., it’s reported the volume of softwood lumber shipped to the U.S.through May 31st ballooned +36% YTD. Some might be wondering what role any consideration for reducing production might have in B.C. mills’ stance /position going forward toward resolution of softwood trade with the U.S. The CIBC report does state that “a period of duties in 2017 could accelerate permanent beetle-related capacity curtailments slated in B.C. over the next three years.” RBC Capital Markets analyst Paul Quinn has also predicted that any preliminary duties imposed in 2017 would result in a number of mill shutdowns right across Canada.

softwood

Housing’s Business Model

July 6, 2016 § Leave a comment

My blogpost in early 2013 pointed to a news story about Blackstone, the largest private real estate owner in the United States. It was reported that in 2012 the company had begun spending $100 million a week buying houses. By 2013, those purchases had accelerated to acquire more than $2.5 billion in rental properties. See: Accelerated Purchases and related post All in.. On the U.S. Housing Recovery.

It’s interesting to learn this week Blackstone have in total amassed about 50,000 rental houses in the past four years. Housing as a commodity. But having first developed and adapted strategies as a buyer/landlord, the company is now adapting to changed market circumstances to become a seller. We’re told the company is beginning to sell “properties that have soared in value or no longer fit their business models”. Under a program called “Resident First Look”, renters get first look, enabling Blackstone “to benefit from having its own pool of ready buyers who are constrained by a market starved for affordable homes”.

On a related note, it’s revealing to see this list of price-to-rent ratios for American cities. According to Investopedia, a price-to-rent ratio of 1 to 15 indicates it’s much better to buy than rent, 16-20 suggests it’s typically better to rent than buy, and 21 or more means it’s much better to rent than buy. For example, with ratios below the 19.2 national average, a number of Texas markets are presently very favorable to homebuyers.

Observers of the bewildering real estate picture, in especially hotspots like Toronto and Vancouver (where the price-to-rent ratio is 55 in the east of the city and 72 on the westside), might be wondering how these patterns of housing dynamics could play out down the road in Canada.

SLAin’t Happening?

June 30, 2016 § Leave a comment

We’re told today that a settlement remains elusive but Canada and the U.S. have edged closer to a job-saving settlement on the softwood lumber dispute. According to a joint statement from President Barack Obama and Prime Minister Justin Trudeau, although “significant differences remain”, officials will “maintain an intensive pace of engagement”.

Call me skeptical, but did we mention seasons of elections are not a time to negotiate trade agreements? With 109 days until the end of the duty-free-for-all standstill period, it’s perhaps timely to revisit the projections outlined May 16th in an industry update from CIBC Institutional Equity Research:

“At some point (maybe late June/July), negotiations will simply cease due to the upcoming U.S. elections. Such a freeze is unlikely to be lifted until a new U.S. president takes office and even then, potentially only after a new U.S. trade representative is confirmed by Congress (maybe March/April 2017). With the window for reaching a deal closing, we expect the U.S. industry will petition for a trade case in five months when the standstill on litigation ends on October 12, 2016, after which Canadian producers could then get hit with 25%-30% preliminary duties as early as February/March 2017. Based on our latest discussions with industry sources, we believe it is highly unlikely that AD/CV duties would be retroactive to October 2016. While a 90-day retroactive period (from the preliminary determination) is possible if the Department of Commerce were to find “critical circumstances” (such as a surge in imports), we understand this measure has never been applied previously to Canadian lumber, and has largely only been used on China.”

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