Alex Pettee, CFA
Timber REITs: Upside As Shortages Ease
How Hot is Too Hot? For Timber REITs, scorching-hot lumber demand from the resurgent housing industry - combined with sawmill production bottlenecks - sent lumber prices soaring to extreme levels.
Inflating construction materials prices - and the outright inability to source necessary goods - forced home builders to delay projects and put many smaller-scale "do-it-yourself" renovation projects on hold.
Victims of their own success? Despite reporting the fastest revenue growth of any REIT sector in early 2021, timber REITs have been the weakest-performing property sector as lumber prices slump.
Recent commentary indicates that bottlenecks are slowly-but-surely beginning to ease - due in no small part to record lumber production from WY and PCH - which is good news for these REITs and the broader housing industry.
Valuations and fundamentals appear compelling amid historic levels of demographic-driven housing demand and record-low housing supply, but investors must be able to tolerate elevated volatility and value inflation-hedging attributes.
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