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The real estate market has been booming once again over recent years ... The lumber market has experienced a perfect bullish storm in 2017. Storms that hit Texas, Louisiana, Florida and the Caribbean caused demand for wood to board windows and rebuild ...

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Sign in / Join NowGO»Market NewsStock IdeasDividendsMarket OutlookInvesting StrategyETFs & FundsEarningsPROMarketplaceGlobal MarketsToday's MarketEconomyGold & Precious MetalsCommoditiesForexReal EstateEditor's Picks(function(w, d) { var getParam = function (name) { name = name.replace(/[\[]/, "\\[").replace(/[\]]/, "\\]"); var regex = new RegExp("[\\?&]" + name + "=([^&#]*)"), results = regex.exec(; return results === null ? "" : decodeURIComponent(results[1].replace(/\+/g, " ")); }; var rc = function(n) { var c = document.cookie.match(new RegExp('(^|;)\\s*' + escape(n) + '=([^;\\s]*)')); return (c ? unescape(c[2]) : null); }; var pLimit = 2, pages = 5, log = rc('user_id'), p = parseInt(getParam('page'), 10) || 1, page = (p Real Estate And CommoditiesNov21, 2017 6:15 AM ET|| Includes: BCI, BCM, CLAW, CMDT, COM, COMB, COMG, COMT, CSCR, CUT, DBC, DDP, DEE, DJCI, DJP, DPU, DWAC, DYY, FAAR, FTGC, GCC, GSC, GSG, GSP, HOML, ITB, NAIL, PDBC, PKB, RCOM, RJI, SBV, UCI, USCI, WOOD, XHBby: Andrew HechtAndrew Hecht Commodities, long/short equity, medium-term horizon, long-term horizonMarketplaceHecht Commodity ReportSummaryLow rates sparked a housing boom.Raw materials demand rises as new home construction continues to grow.Lumber rises to a new all-time peak.Rates are on the rise, but are still historically low.Inflation, tax policy, and the desire for a low dollar will impact the real estate sector in 2018.The real estate market has been booming once again over recent years, after a harrowing experience that started back in 2008The bull market in real estate that came to a crashing halt when the mortgage-backed securities market plunged almost a decade agoThe downturn in housing prices was the result of government and regulatory initiatives to increase the level of homeownership in the United StatesAs banks and lenders loosened standards, it allowed a higher percentage of the population to enter the ranks as home-ownersHowever, exotic mortgage products and refinancing as home values increased caused many to use equity to pay their monthly mortgage paymentsAt the same time, the lending standards became so lax that people without means were buying properties they could not affordIt all came crashing down along with the value of homes following the bursting of the real estate bubble in 2008Building a new home requires raw materialsIn the years that followed 2008, we witnessed demand for many of the basic construction materials in the United States and around the world declineHowever, to revive the economies in the U.Sand Europe, central banks slashed interest rates and instituted programs of quantitative easing to inhibit savings and increase borrowing and spending on large ticket items, like housesLower interest rates helped the real estate market to come booming back, and now new home demand has increased dramatically, and home prices are moving to levels that are higher than the pre-2008 crash highs once againThe rise of new construction in housing has been good news for commodities bullsLow rates sparked a housing boom Central banks like the U.SFed control short-term yields via the Fed Funds rate which is their primary monetary policy toolThe aggressive nature of the Fed and ECB following the 2008 financial crisis created the necessity for the monetary authorities to reach out further along on the yield curveQuantitative easing in the United States amounted to a put option on U.Sgovernment bonds and stimulated economic conditions by inhibiting saving and encouraging borrowing and spending. Source: CQG As the quarterly chart of the U.Slong bond shows, after a flat market from 2002 through 2008, the bond took off to the upside and rates came down to the lowest levels in modern history as a result of central bank intervention to lower yieldsWhile the Fed only applied quantitative easing to government debt securities, a series of bailouts through TARP funds bolstered the balance sheets of most financial institutionsThe European Central Bank took QE one step further as the included some corporate debt securities in their program which is ongoingThe bottom line is that massive liquidity and the lowest interest rates in history created an opportunity for qualified borrowers to finance new homes at uber-attractive ratesI remember when I bought my first property in the 1980s my father told me that in the 1950s he was able to secure a veteran's mortgage at 4.5%As I was borrowing at over 12%, I could not fathom a rate so lowHowever, over recent years, 4.5% on a thirty-year mortgage became much higher than the market rateThe housing "bubble" burst in 2008 and led to years of financial problemsHowever, the central bank's treatment and cure to the problem, has led to another housing boomRaw materials demand rises as new home construction continues to grow Building a new home requires lots of raw materials that are basic construction building blocksMetals, minerals, and even agricultural commodities like wood are the ingredients in home buildingIn markets hardest hit when the real estate bubble burst in 2008, low rates have sparked a building boom once againI live in Las Vegas, and the amount of new construction and demand for brand new homes has exploded over the past three yearsMy wife and I purchased a new Lennar home in March 2016, and the price has appreciated by a staggering 30% since the day we signed the contractEven though the price is much higher, demand continues to rise, and the rate of new construction in my neighborhood is higher today than it was just twenty short months agoLas Vegas has long had a boom and bust real estate marketIn other areas of the country, like Florida and California, the prices of new homes have increased dramatically from the post-crisis lows, and the new construction market is booming these days Source: Barchart Since February 8, 2016, the price of Lennar (LEN) shares have appreciated from $37.14 to $59.11, an increase of almost 54% in less than two yearsOther homebuilders have experienced similar price growth when it comes to their sharesWhile the home builders are making lots of money these days, demand for the commodities that are essentials for construction have also moved dramatically higher over the periodLumber rises to a new all-time peak The futures market for lumber is highly illiquid and dangerous when it comes to any trading or investing activitiesHowever, the price of wood that trades on the Chicago Mercantile Exchange is a significant benchmark when it comes to following the demand for construction materials and the building blocks of new homes Source: CQG As the quarterly chart of CME lumber futures that dates all the way back to 1972 illustrates, this month, the price of wood rose to a high of $500 per 1,000 board feet on the nearby futures contractThe previous all-time high for the price of wood was $493.50 in 1993The lumber market has experienced a perfect bullish storm in 2017Storms that hit Texas, Louisiana, Florida and the Caribbean caused demand for wood to board windows and rebuild homes destroyed by the hurricanes and flooding caused demand to sky-rocketIn California, wildfires in Sonoma and Napa reduced homes to ashes causing a spike in demand for wood to rebuildHowever, lumber futures have been making higher lows and higher highs since 2009 which is a result of interest rate policies that have fostered demand for new homesRates are on the rise, but still historically low Liftoff from a zero percent Fed Funds rate occurred in December 2015 when the central bank moved to hike rates by one-quarter of one percent for the first time in nine yearsSince the initial hike, the Fed has increased the Fed Funds rate by twenty-five basis points three more times, once in 2016 and twice so far in 2017The fifth hike is likely coming in the weeks ahead before the end of 2017, and the central bank has said that it will probably hike three more times in 2018In a recent report, Goldman Sachs told markets that economic growth above 3% could cause as many as four rate hikes in 2018Even if Goldman is correct, and the FOMC moves four times next year, that would put the Fed Funds rate at the 2.25% levelThe bottom line is that rates continue to be historically low and demand for new homes and the commodities necessary to build them will continue to be strong. Inflation, tax policy, and the desire for a low dollar will impact the real estate sector in 2018 Rates continue to be supportive of new home building, but there are issues on the horizon that could affect the real estate sector in 2018 and beyondInflation, according to the Fed and other central banks remains below their 2% target rateHowever, there will likely be a price to pay for all of the liquidity poured into the financial system over the past decade by central banksThat price could be inflation as low rates and liquidity eat away at the value of money making finite resources, commodities, rise in valueAt the same time, population and wealth increases around the world will increase competition for finite raw materialsAs inflation eats away at money, the prices of the ingredient of construction will rise making new home construction more expensive in the years to comeTax policy has been supportive of some of the real estate markets around the U.SIn Las Vegas, prohibitive real estate and income taxes in neighboring California have caused a growing exodus across the desert to Nevada, a state with low real estate and no income taxes, over recent yearsFlorida has attracted residents of high-tax states in the Northeast and Mid-Western U.Sfor years and these days housing prices and new construction are booming in the Southern stateWhen it comes to the future of tax policy, changes in Washington DC when it comes to tax reform now before the Senate could impact real estate values for the years to comeChanges to the deductibility of mortgage interest and real estate taxes on a Federal level could cause a mass migration to tax-favorable statesThe change could depress home values in places like the tri-state New York area, California and other regions while exacerbating the boom in sales and values in states like Nevada and FloridaAt the same time, the dollar has moved appreciably lower in 2017The dollar index has declined from 103.815 in January of this year to its current level around 94, a decrease in value of 9.5%The weaker dollar will likely encourage more foreign investment in the U.Sreal estate market if the greenback remains at its current level or moves lower. When it comes to real estate, any agent will tell you that three factors determine value and they are; location, location, and locationThe trend in the U.Ssupports a continuation of the housing boom in tax-favorable states where the majority of building continuesSince rates will remain low, and values are rising in areas where construction is buoyant, I believe that demand for commodities will continue to be strong as the attraction of a brand-new home will attract buyers and bolster economic conditionsIndustrial commodities have performed well in 2017, and the prospects for 2018 based on trends in the residential housing market around the U.Sare telling us that 2018 will be another strong yearEach week in The Hecht Commodities Report, I provide subscribers with up, down, or neutral price bias based on a combination of fundamental and technical analysisThe report is a useful ready reference for investors who trade or invest in futures and options markets, and in ETF and ETN productsAs a holiday special, I will be offering a one-week free trial for The Hecht Commodities Report in DecemberThe free report will be available late in the day on Dec13The price will also be going up as of Jan1, 2018But if you subscribe before Dec31, you'll be grandfathered in at the current low price for the lifetime of your subscription. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours I wrote this article myself, and it expresses my own opinionsI am not receiving compensation for it (other than from Seeking Alpha)I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equitiesThese long and short positions tend to change on an intraday basis.About this article:ExpandAuthor payment: $35 + $0.01/page viewAuthors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Macro View, Real EstateWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click hereFollow Andrew Hecht and get email alertsLive Chat-We apologize for the inconvenience.The chat platform is currently undergoing maintenance.To see the chat, try to refresh in about 5-10 minutes.Chat is not supported in your browser version.Please upgrade your browser or use a different browser, such as Google Chrome.You do not have permissions for this room..st0{stroke:#FFFFFF;stroke-width:2;stroke-miterlimit:10;} .st1{fill:#FFFFFF;} .st2{clip-path:url(#XMLID_2_);} .st3{fill:url(#XMLID_3_);} .st4{fill:url(#XMLID_4_);} .st5{fill:url(#XMLID_5_);} .st6{fill:url(#XMLID_6_);} .st7{fill:#FFFFFF;fill-opacity:0.2;} .st8{fill:#3E2723;fill-opacity:0.1;} .st9{fill:url(#XMLID_7_);} .st10{fill:none;}Top Authors|RSS Feeds|Sitemap|About Us|Contact UsTerms of Use|Privacy|Xignite quote data|

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