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Don’t Forget! You Saw it in the
April 2017 #10213 Page #65
Lumber Briefs By Matt Layman Publisher, Layman’s Lumber Guide
Transition From Multi-Family to Single Family is Here
For a few months now, I have detected an uneasiness among lumber buyers. Near term expectations are bullish, however, there is an underlying sense of caution. Something is just not quite right in the housing sector. I believe I know what it is. Winds of Change Several years ago, when Canadian lumber producers began courting the Chinese for their lumber business, I warned not to put too many lumber eggs in the China basket. The reason was, as soon as the trade became lucrative, Russia would come strong-arming for the business. It took about three years before the Communist allies struck a deal and sent shock waves through the North American Softwood lumber industry. What we were reminded of was, “when something seems too good to be true, it usually is.” I see a similar situation developing in the multi-family housing boom. On the same ground, and in a fraction of time that it takes to build 20 new single family homes, a multi-family builder can construct 200 apartments. This inflates housing starts data. Both the component industry and lumber dealers have become very dependent upon these $2 million-ish framing packages. Is it too good to be true? Can it last?
Single vs. Multi-Family Demand I believe the uneasy feeling among lumber buyers is the next big surprise in housing. That is going to be multi-family saturation, i.e., ample supply and a shift to single family homeownership or rental. Here is why. The driving force behind the multi-family boom is millennials, the largest pool of potential home buyers who desire location on a budget. Multi-family builders are making renting more desirable than owning, primarily by putting them closer to their desired living area at a lower price than buying. What could possibly cause these young adults to change their priorities and shift from renters to owners and move? One tiny thing. A baby. The social implications for a young married couple completely change when they become a family. On the average, 3.2 years into a marriage or co-habitation, millennials have a child together. In a matter of a just a few months, these hard-core renters need more space, a yard, privacy, and security. They need a fence for the baby and the dog. They become responsible adults thinking about the future. They realize that investing in a home is desirable and makes financial sense. The reasons for renting, rather excuses for not buying, evaporate.
Seeing the Signs One question now is, when will the number of “transitioners” reach critical mass? The multi-family market grew for five years, 2011–2015, and 2014–15 were surge years with many metro areas doubling their output during those two years. The second half of 2016 saw a decline in growth. Is this our leading indicator of shift in demand from multi-family to single-family housing? I think so. The initial reaction will be evident in building permits. We should see a decline in multi-family permits 5 or more units. That will show up in starts in the subsequent months. But not to panic. This decline in multi-family will also forecast an increase in single family starts. Continued next page PHONE: 800-289-5627
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