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Following a dramatic selloff during this year’s market meltdown, lumber has more than recovered and is now trading far above its December 31, 2020 price. Meanwhile, the commodity is beginning to sell out across North America thanks to tight supplies and an unexpected resurgence in demand. This is great news for timber and lumber REITs whose share prices have yet to make a commensurate recovery.

Related REITs: Weyerhauser (WY), Rayonier (RYN), PotlatchDeltic Corp (PCH), CatchMark Timber Trust (CTT)

2020 could prove to be a breakout year for timber and lumber REITs as rising lumber prices, increased demand for the commodity, tight supplies, and low interest rates drive share prices higher.

Surging Lumber Prices

After plunging from a spot price of $460 per 1,000 board feet on February 20 to about $260 on April 1, lumber has firmly climbed back up and is now trading around $500. The current price is 28% higher than at the beginning of 2020 and 51% higher than a year ago.

MRP believes prices could head even higher and perhaps surpass the record peak of $659 reached in May 2018 due to improving demand/supply fundamentals.

Improving Demand Fundamentals

The fact that, 50% of U.S. softwood lumber consumption is typically from homebuilders, that wood demand is highly correlated with the strength of the housing market, and that U.S. housing is weathering this year’s economic downturn a lot better than most had anticipated are reasons to be bullish on the commodity.

For one, America’s homebuilders may have just experienced their strongest June sales since the last housing boom. According to a monthly survey conducted by John Burns Real Estate Consulting, which has historically mirrored the U.S. Census report, sales of newly built homes jumped 55% annually last month, notching the largest annual gain since homebuilding began again following the housing crash a decade ago. June’s gains…

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