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In recent years, the explosion of the real estate market has created a boon throughout the world for many commodities. Because the construction of houses uses massive amount of copper, nickel, zinc, aluminum, and lumber, the recent boom in many materials is a direct result of the growth in this market. While prices for real estate are starting to slow and even turn negative, housing starts themselves have witnessed a remarkable decline. Many projects, seeing a weak market on the horizon, have been cancelled and postponed. While the future price of real estate is especially difficult to predict even with this information, the price of some of these materials, especially lumber, is much easier. As decreases in planned projects become more commonplace, the demand for lumber will weaken considerably. As it is, over 66% of lumber's demand comes from new construction with considerably less used for upgrades. The global nature of the real estate construction boom in the past several years has been the determining factor for the rise in lumber prices. Already, places like Australia and Britain have witnessed a noticeable slowdown, and one is on the horizon in places like the United States and China. Companies that use lumber for their construction needs may soon quit buying lumber futures, taking a necessary buyer out of the market. In fact, lumber futures may be the best predictor of the course of real estate prices that is available. At this point in time, an investor who believes a crash in real estate is imminent may choose to short lumber. |
