Investors often want to take advantage of commodity price movements in the market, particularly when activity in the property sector of the economy indicates changes are on the way. For decades, traders have used “leading economic indicators” in every market to predict price action for stocks and other commodities. The price of commodities, like lumber, used to build houses is often viewed as a leading indicator for the housing market in general.
Indeed, for the past 30 years, at least, as the price of lumber rises and falls, the housing market soon follows. Some economists think there is an inherent relationship between several commodities and the property market. Here are some of the ways that traders can use this information to profit on changes in commodity prices.
Building Permits Can Signal Commodity Prices
One of the surest ways to view the relationship between property markets and commodity prices is to study trends in the number of building permits that are issued. Permits themselves are often considered a reliable way to see what the housing market will be doing one or two years out. However, keeping an eye on building permit volume can help investors see where commodity prices are going.
There’s a standard explanation. First, when permits drop sharply there’s usually a follow-up in the property market, often expressed as a general price decline. Investors who want to confirm their suspicions can wait, after a decrease in the number of building permits, for a fall in the number of housing starts and the number of sales. When those three indicators travel in a downward, or upward direction together, the property market will usually follow in due time.
Lumber Prices Can Predict Housing Market Health
Nowhere is the relationship between commodity prices and the property market more clearly evident than in the price trend of lumber. The obvious, intimate connection between board products and houses is an important part of this economic reality. The way it plays out is almost like clockwork, in fact, and is the reason so many investors keep an eagle eye on lumber price fluctuations and trends.
When lumber prices shoot down or up, there is a high probability that the property price index, expressed in terms of housing sale prices, is ready to take a tumble. These days, in order to stabilize the price of lumber, this Logging Company and many others like it are adopting a method of sustainably sourced timber. As this is an economically feasible option for getting board materials, speaking in the long term, the prediction is that it can bring down costs in the housing market. While lumber does seem to be a good commodity to predict the housing market, investors should remember that it often takes the housing index a year or two to respond to a fall or uptick in lumber price levels.
Steel, Copper, and Fuel Often Foretell Property Market Fluctuations
Fluctuations in commodity prices, such as steel, copper, and fuel, influence the expenses associated with manufacturing and maintaining construction equipment. When commodity prices are high, construction equipment rental costs tend to rise, subsequently impacting the overall cost of property development. Developers, construction firms, and construction equipment rental agencies, in turn, may adjust their strategies and project timelines based on these cost fluctuations. Conversely, a dip in commodity prices could lead to more affordable construction equipment rental rates, potentially spurring increased construction activity in the property market. This intricate interplay highlights how the dynamics of construction equipment rental costs play a pivotal role in shaping the landscape of the property market.
The intricate dance between commodity prices and the property market unveils a fascinating narrative that investors and traders can leverage for strategic decision-making. By closely monitoring leading economic indicators such as building permits, astute investors gain insights into the future trajectory of both commodity prices and the property market. The undeniable correlation between lumber prices and the health of the housing market serves as a reliable barometer, offering a valuable predictive tool for investors seeking to navigate market fluctuations.
Additionally, the ripple effect of commodity price movements extends to steel, copper, and fuel, influencing construction equipment rental costs and, consequently, shaping the overall landscape of property development. As we look ahead, the symbiotic relationship between commodities and the property market underscores the importance of a holistic approach to investment, where a keen understanding of these interconnected dynamics can empower investors to make informed and profitable decisions in a dynamic economic environment.