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IS YOUR ORGANIZATION READY FOR THE COMING BUILDING REVOLUTION?
The American building community of developers, architects, engineers, contractors and building construction firms are currently facing a multitude of challenges that require urgent attention. The scale and scope of these challenges will force change at a revolutionary rather than an evolutionary pace. Marginal improvements and refinements aren’t going to cut it any longer, since many of the current challenges facing the sector will almost certainly continue to get worse rather than improve. Moreover, although this article mainly focuses on the domestic front, these challenges are by no means confined to the United States. In fact, many of them are more pressing abroad, in both advanced and emerging economies.
Are you ready for the revolution?
In my previous Spotlight, I reviewed the challenges facing the Federal Reserve (Fed) over the next few years. The primary goal for the Federal Reserve is to maintain a healthy financial system that allows for sustainable trend economic growth with moderate inflation (the goal is 2% or less for the price deflator for consumer expenditures less food and energy).
We have received a slew of media inquires in the past week from reporters who were pushing the following storylines:
1. Donald Trump’s tariffs on lumber have caused prices to surge from about $300 per thousand board feet (MBF) to more than $600 per MBF.
2. Surging building materials prices pose a potentially mortal threat to the US housing recovery.
Our short responses to these storylines are as follows 1) that ain’t necessarily so, and 2) that’s hogwash.
The rate of housing removals is an often overlooked, but surprisingly important component of housing demand. It is often overlooked because quality data on home removals are scarce to nonexistent. It is important because removals account for about 20% of the demand for housing over the course of a housing cycle. Only net household formation accounts for a bigger share of underlying demand for housing.
The purpose of this spotlight is to flag one of the potential spoilers for the housing recovery over the next few years: above trend economic growth that fuels an escalation in the inflation and interest rates. We seem to have arrived at an inflection point. A few years ago, the Federal Reserve (Fed) was concerned about slow growth and deflation. As a result, Fed policymakers cut interest rates to zero and started purchasing government long-term securities to drive long-term interest rates lower as well. The Fed’s concern is now correctly focused on how to avoid excessively high economic growth that might push the inflation rate above the desired target of 2% per year.
Great Results in 2016; Even Better in 2017
The improving dynamics in almost all global markets positively impacted the timberland and lumber producers in the major importing and exporting countries in 2016 and again — even more significantly — in 2017. Expanding demand and high prices have been key themes for lumber producers and exporters, with some strong earnings being recorded (particularly by U.S. producers).