Interestingly Mixed Signals

Which tea leaves should you gaze upon to determine where the housing market is going?  Analyze the market movements for basic building materials.

Part of the upsurge in prices of new building is in the costs of building materials getting hiked up with heated demand.  Think cement, lumber, and drywall; think like a builder in construction economics.

Builders are pushing back on their increased costs to build and on rising interest rates, cooling demand, and mass media drum-beating a bubble-burst.  Rates are lower now than in months; homebuilder stocks are up this week and Alan Greenspan has uttered encouraging comments regarding the housing market.
The inspiration for this posting struck me based on two events, first when I received an email two days ago about Warren Buffet buying into a company called USG, and secondly when I read a story regarding lumber yard businesses.  Then I did a little research of my own.

Let me fill you in on a little background about the email I got about the “Sage of Omaha” and his recent purchase.  I’ve always made good money in real estate, not so in the stock market.  Fundamentally real estate markets move in a much broader, slower time frame than stocks and commodities do — think oil at $70 a barrel this summer and now just under $60 a barrel a barely two months later; yes, I’m a little slow, I think in months and years – not hours nor days – it’s a midwestern thing.  I’ll never be a floor trader, but I figured if I knew where the big investors, players and insiders were going I’d just jump on their bandwagon and follow; I’ve made almost 20% this week on insider trade alerts.

So back to USG — this company makes gypsum board, dry wall, ceiling tiles and installation systems, and it’s coming out of huge asbestos litigation and bankruptcy protection, all associated with creation of a huge fund set aside to settle this legal situation.  Today’s wallboard market is marking a 13% increase over last year — nothing to sneeze at — and 3% this month, beyond a 2% increase last month. Check out the numbers here http://www.enr.com/features/coneco/subs/recentindexes.asp 

I *inkle* why Mr. Buffet bought this now, and I also know he buys for value and the future … he holds companies for many years; I suspect he believes commercial building is going to be buying this drywall and ceiling systems from USG, which is exactly what I hear from ULI (Urban Land Institute) here in our local San Francisco market where they expect commercial rental rates to rise substantially, up to $60-70 average annual asking rent rates per square foot.

Residentially we may be in for a quieter period, but commercial investment is coming out of its duldrums.

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