Lumber Prices Are Getting “Out Of Hand” — Here’s How You Can Profit
To move or not to move… and when? These are the questions my wife and I are pondering these days.
All around Austin, just about every spare tract of land is marked for development. A new billion-dollar Apple campus here… Tesla gigafactory there… Giant mix-use office and commercial developments down the street. Take a drive out of city limits, and there’s houses springing up all over the hill country like wildflowers.
This may sound exciting, but there’s just one problem… Locals like us who are looking to move are getting priced out of the market. Homes in our area are routinely selling for 15% above asking price or more. This has made it tough for folks like us… after all, how do you compete with someone moving here from California who’s making an all-cash offer?
Chalk it up to the warm weather, the low taxes, the barbecue, or maybe all three (and more). But they’re coming here in droves. And our little corner of the Lone Star State isn’t alone in this… home prices are gaining steam everywhere.
There are a few key factors driving up home prices. And people moving from one place to another is just one of them. Another big reason has to do with lumber prices, which have been soaring. For those of you keeping score at home, this is something my colleague Jimmy Butts and his team over at Top Stock Advisor predicted would happen months ago.
Lumber Prices “Getting Out Of Hand”
I want to circle back to this topic, because the situation is getting even worse (or better, depending on how you’re positioned).
Take this piece from Fortune, for example:
Last week the price per thousand board feet of lumber soared to an all-time high of $1,188, according to Random Lengths. Since the onset of the pandemic, lumber has shot up a whopping 232%.
Home builders and DIYers don’t want to hear this, but the ceiling could be higher—maybe even a lot higher. On Monday, the May futures contract price per thousand board feet of two-by-fours jumped $48 to $1,420. That squeeze once again triggered the circuit breakers and caused lumber trading to halt for the day. Why would lumber yards and builders pay above market rates? Severe lumber scarcity has buyers on edge. They’re buying the sky-high contracts in order to ensure they’ll actually get the lumber they need for projects already under contract.
All in all, one expert quoted in the piece thinks the timber market is dangerously close to getting “out of control”. Regardless, it doesn’t look like the situation is getting better anytime soon, which means there’s still time for us to profit…
Up until recently, you might have been surprised to learn that one of the most profitable asset classes of the past century has been timber. In fact, according to one analysis our Top Stock Advisor research team found, it’s posted 11% annual returns from 1972 to today.
Here’s another interesting tidbit our research folks found… The average American uses enough timber products each year to account for a 100-foot Douglas fir tree. And although the timber industry has made great strides in improving the productivity of forests, there’s only so much they can do. You can’t accelerate the process of growing trees that were planted to replace lost timberland.
How You Can Profit
So how can you profit from this situation? Well, as you may know, my colleague Jimmy Butts and his Top Stock Advisor team made their call on lumber prices back in December – way before this was on any media outlet’s radar. They made the call as part of their report on investment predictions for 2021.
Jimmy and his team gave readers a few ideas in that report, and one of them is Rayonier (NYSE: RYN).
This company gets a little less than half its revenue from timber and owns 2.2 million acres, mainly in the U.S. The rest of its business comes from specialty wood products, such as cellulose and high-performance fibers. Unlike paper consumer products (which have little pricing power) or building products (which are dependent on home construction and improvement activity), these specialty products are technologically advanced and thus provide relatively high profit margins. RYN provides excellent income with a recent yield of 3%.
One caveat though: the stock is already up big-time and it’s not particularly cheap. And there are a few other choices out there.