Over the past few years, the strength in lumber proved to be a leading indicator for the bullish action we had seen in the homebuilders and, frankly, all housing related stocks.I have no comment on housing stocks, but I suspect this decline is either just "noise" following a large price increase, or more supply coming back on the market (remember many mills closed during the housing bust, and I suspect some are coming back online). Back in 2010, after the end of the housing tax credit, I noted that lumber prices collapsed. But the dynamics were different (that was obviously tax credit related and not a real recovery).
This week, though, lumber has sold “limit down” ...
Click on graph for larger image in graph gallery.
This graph puts the recent decline in context. This graph shows two measures of lumber prices: 1) from Random Lengths through last week (via NAHB), and 2) CME futures (through today).
The recent decline in CME futures hardly shows up.