Futures prices and PPI have come down (see here). The question is whether the consumer (say a house builder) has seen comparable price decreases. Here are two pictures that suggest they have.
From NAHB “Eye on Housing” (7/14):
The graph above only goes through part of July. Here’s a graph that extends the sample through mid-December, and compares against futures:
In other words, prices facing construction firms have declined, much in line with CME futures prices. This is in line with data shown in this post.
https://fred.stlouisfed.org/graph/?g=YcwR
January 30, 2018
Case-Shiller Real Home Price Index, 1992-2022
(Indexed to 1992)
https://fred.stlouisfed.org/graph/?g=YstS
January 30, 2018
Case-Shiller Real Home Price Index, 2017-2022
(Indexed to 2017)
https://fred.stlouisfed.org/graph/?g=KPNp
January 15, 2018
Producer Price Indexes for lumber & wood products and plywood, 2017-2022
(Percent change)
https://fred.stlouisfed.org/graph/?g=OnO3
January 15, 2018
Producer Price Indexes for lumber & wood products and plywood, 2017-2022
(Indexed to 2017)
Both home prices and mortgage rates are down from their recent peaks:
https://fred.stlouisfed.org/graph/?g=Ysvc
The MBA mortgage application-for-purchase index had been improving until the most recent week:
https://tradingeconomics.com/united-states/mba-purchase-index
With employment growth strong (not holistic, but strong, nevertheless), there may be room for improvement in the housing sector. ADP’s report of 41,000 new construction jobs in December probably exaggerates the improvement in prospects for home construction.
@ Macroduck
I was about to ask in the Wells Fargo thread, Is “holistic” Oprah Winfrey’s word of the month or what is the deal?? WOW man. But hey, while we’re making it overused to prove we’re in the “in” crowd, let’s murder the meaning while we’re at it.
My question is, if Jerome Powell doesn’t keep raising rates 50bps or more, will his fraternity brothers at Carlyle Group still feel he’s fighting hard for the working class? Gosh…….
“ADP’s report of 41,000 new construction jobs in December probably exaggerates the improvement in prospects for home construction.”
BLS’s report out today say this increased by 28,000. Of course that was the payroll survey. The household survey shows much more overall employment growth than did the payroll survey.
“Both home prices and mortgage rates are down from their recent peaks”
Well the 30 year mortgages rate did drop to 6.27% on the last Thursday of 2022 but it slipped back to 6.48% as reported yesterday:
https://fred.stlouisfed.org/series/MORTGAGE30US/
I should say this before Jonny boy goes off on another one of his emotional tantrums.
As for the Robert Shiller home price model, that was developed with data from 1890 through the 1990s, the model appears to have a new structure evidently much to Shiller’s surprise. Home prices tracked inflation for a century, but the pattern seems to be that of the broad stock market now. What this means is well worth exploring.
The model doesn’t hav a “new structure” unless Shiller has rewritten the model. Do you mean that there has been a structural change in the housing market?
I was thinking about gender, and what a complex turn it has taken, in certainly the last 20 years and really over a much longer arc of time. And I was reading that Jordan Peterson was at Hoover Institution last April, roughly 8 months ago. Now Jordan Peterson to me fits the textbook definition of a true misogynist and sexist, if we’re not just casually throwing around the term to score points with an audience or in a misguided way to win an argument a person was losing on the mere facts. And really I think Jordan Peterson is a psychologically sick person, I mean sociopath level, like our killer/Phd student in Pullman Washington. And I was wondering, how does it make anyone feel who has been at the Hoover Institution, as a speaker, as a guest, or in the audience of a Hoover Institution event?? Or a person who has defended the Hoover Institution as “similar to Brookings”. Do they think that makes Hoover “broad-minded” or “tolerant” on gender issues and attitudes towards women to invite a “person” such as Jordan Peterson to speak?? I guess those people would have to take a few moments of introspection, and ask themselves.
Personally…….. if I had ever given a speech there at Hoover before, or attended a Hoover Institution event as a guest, and heard/read Jordan Peterson had spoken there and the Hoover host had been near subservient in his questions and treatment of Peterson, I think I would literally be physically ill. But hey, you know me, I’m a jerk towards women, so don’t go by MY thoughts.
We finally have a measure of retail prices. Seriously JohnH thinks a rise in wholesale prices which raises the cost of goods sold for Home Depot necessarily raises their gross margins. Never mind that its gross margin in 2021 was lower than its gross margin in 2019.
Yea Jonny neither checks the relevant data nor knows how to interpret it. Was there some market power explanation for rising wholesale lumber prices even as timber prices remained modest? Sure – the sawmill sector has become more concentrated. But no – Jonny cannot see this either.
Always read the sources.
The implication of the title is that the first graph is retail consumer prices. But the NAHB did not survey consumer prices. If you read the source text, all the NAHB did was take wholesale prices at the mill and then mark them up by some gross margin value. The graph is not of retail consumer prices as the title implies. It is just a scaled up version of wholesale prices.
joseph: Yes, good to read the footnotes. That’s why I wrote “near” in the title. But point taken.
Table 4 of that Census report provides estimates of gross margins, which generally were higher in 2021 than in 2018, which is no surprise. For lumber, the gross margin was 26.6% in 2018 and 28.4% in 2021, which is a modest increase.
So if anyone were willing to take of this at face value and do the really hard work, one could provide a more precise estimate of how retail prices have evolved.
Let’s see if JohnH knows how to do this task properly. I have my doubts. But common sense tells me that the revised series will see show retail prices falling a lot.
Of course, I repeat what i have been seeing – that being there is consolidation in the sawmill sector which is part of what is driving WHOLESALE prices. But the idea that the retail sector is massively more consolidated than it was 4 years ago has little to no support.
I’ve been looking over those Census tables. Table 6 tells us that commission agents who sell electronics tend to make a 4.6% commission rate while their operating expenses are around 3.6% of sales. Anyone who has defended the transfer pricing for US sales affiliates of Asian electronic exporters probably appreciates this data as it is consistent with what one gets when one uses Japanese trading companies to benchmark this issue.
On the other extreme Census tells us distributors of beer and wine (Moses – you might like this) get gross margin = 29.9%, which sounds right. But wait – operating expenses are only 17.4%. That is a high operating margin if this data is to be trusted. Oh well – maybe a bottle imported Australian wine for dinner!
Interesting.
“the NAHB did was take wholesale prices at the mill and then mark them up by some gross margin”.
So it is tracking wholesale prices if this assumed gross margin is fixed. JohnH keeps telling us that the retail margin has skyrocketed but all he ever presents as evidence is the wholesale price so his claims have zero merit.
‘Builders do not in general buy lumber and other building products directly from sawmills, but from an intermediary like a lumber yard. For that reason, NAHB estimates mark up sawmill prices by gross margin as a percent of sales for the “lumber and other construction materials” industry, as reported in the U.S. Census Bureau’s Annual Wholesale Trade Tables’
BTW – this link is from the summer of 2022. Now I get this is likely the best one can do. We do know WHOLESALE prices rose, then fell, rose again, and have fallen of late. Not exactly the downward sticky price model JohnH touts, which BTW is neither a necessary nor sufficient condition for having an oligopoly in the sawmill part of the industry.
Thanks for the heads up on the details. That Census link has a wealth of sector by sector data including gross margins by years.
It is nice to see a fellow reader who takes the time to check the important details.
BTW in an earlier post, I linked to some commercial lawsuit where the sawmill companies are being sued over this enormous increase in lumber prices. It is interesting that their lawyers are going after the sawmill giants and not the retailers. And if this lawsuit goes forward, both sides will need testimony from expert witnesses. You could ably serve on one of these teams but I’m already on record that the plaintiffs should avoid hiring JohnH.
If the expert reports ever become public, this would make for an interesting follow up post.
“It is just a scaled up version of wholesale prices.”
Well it is. But it does seem that the gross margin used varies by year. So the reported series already incorporates the change in the wholesale price and this year by year estimated gross margin.
Not a perfect measure but probably the best one we can get.
Now we are responding to some made up silliness from JohnH that retail prices are high because Home Depot dramatically increased its gross margin. A very small part of the variation in retail prices came from changes in gross margin but the real reason why lumber prices rose – then fell and rose and then fell again – has more to do with the prices Home Depot etc. pay the sawmills.
The fact that timber prices did not skyrocket raises questions about the competitiveness of the consolidated sawmill sector but that is not the BS theory JohnH has kept touting.
The projected vote count for McCarthy on round 12 is between 211 and 213. We know Jeffries will get 212. OK you last two hold outs – vote for anyone except McCarthy. PLEASE!
So will loggers lose their shirts on timber they bid on 6 months ago and harvested just now?
Timber prices are not lumber prices. I guess you took Industrial Organization from the Village Idiot JohnH.
BTW loggers GROW trees. They do not bid on them like someone who bids on a futures contract,
And if you think it takes only 6 months to grow a tree – you are dumber than people give you credit for.
pgl: “BTW loggers GROW trees. They do not bid on them like someone who bids on a futures contract”
Loggers do bid on timber, like here for one example, often months or years in advance.
https://www.fs.usda.gov/managing-land/forest-management/products/timber-sales
And most loggers, unless they are big private corporations like Weyerhaeuser or Georgia Pacific, don’t grow their own trees. Loggers bid to harvest the timber owned by others, on both private and government land.
You could do yourself a favor by refraining from commenting on an industry you know nothing about.
Depends on the definition of loggers. If you define the loggers as the sawmills fine. If a logger means the folks who grow trees, then you have sort of made my point.
“You could do yourself a favor by refraining from commenting on an industry you know nothing about.”
That is one pathetic comment. You’re better than that – I hope.
Before you get overheated over the choice of words:
https://www.merriam-webster.com/dictionary/logging
logged; logging
transitive verb
a
: to cut (trees) for lumber
b
: to clear (land) of trees in lumbering —often used with off
I will refrain from hurling childish insults as I’m sure you were talking about people who own sawmills. But take your anger out on the people who wrote this dictionary.
“unless they are big private corporations like Weyerhaeuser or Georgia Pacific, don’t grow their own trees.”
Well Weyerhaeuser is a timber REIT that owns a sawmill TRS. But GP grows their own trees. Dude I just to work at 133 Peachtree St. in the old Andersen days so GP was not only our landlord, I did some of their transfer pricing. I get the Koch Brothers bought them in 2005 so I checked their last 10-K (2004). It does talk about manufacturing wood products using third party timber companies for their raw materials. If they own timberland, that is news to me.
But come on – to tell me that I know nothing about this sector is beyond insulting and pointless. It’s STUPID.