Canadian lumber producers wont quickly profit from surging U.S. new home sales

The Canadian Press ~ The News
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MONTREAL - Canadian lumber producers won't immediately profit from surging U.S. new home sales, a forestry analyst said Wednesday.
New home sales soared 9.6 per cent in July, rising for the fourth straight month, beating expectations and pointing to further signs of an economic recovery.
The Commerce Department said sales rose to a seasonally adjusted annual rate of 433,000, up from 395,000 in June. That's more than 30 per cent above January's bottom and the highest level since September.
While the improvements are welcome news, Paul Quinn of RBC Capital Markets said high inventories of existing and foreclosed homes will quash any positive impact on Canadian producers likely until the spring.
"New homes are at quite a low level so it's not driving up demand and we've got more than enough supply to meet that demand," he said in an interview.
Demand for Canadian lumber won't meaningfully accelerate until the 4.1 million existing homes are whittled down, Quinn noted.
Investors expect lumber prices will continue to fall as futures for September are US$180 per thousand board feet, representing a discount from current cash prices of US$195.
"I think the outlook is for the fourth quarter to be very quiet and the first quarter to be quiet as well," Quinn said.
The situation could become more interesting come spring, however, if efforts to constrain production during the winter season result in higher lumber prices.
BMO economist Jennifer Lee said the higher new home sales figure "is another encouraging sign that U.S. housing is finally on the mend."
She said items supporting a recovery are working in tandem. They include a $8,000 first-time homebuyer tax credit, high affordability, low mortgage rates and concerns that house prices have bottomed.

Organizations: Commerce Department, RBC Capital Markets

Geographic location: U.S., MONTREAL

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