Is falling lumber a warning for Homebuilders?

Michael Sacchitello at Stone McCarthy Research Associates looks at whether the recent breakdown in lumber prices presents a risk to the S&P Homebuilders Index, given the historically strong correlation between the two and a tendency for lumber prices to lead Homebuilders.

Sacchitello points out, however, that the relationship between Homebuilders and lumber has been uncharacteristically weak since the latter part of 2013 – with the 1-year correlation coefficient close to zero – which he says is probably caused by the trend towards lower mortgage rates.

In fact, the Homebuilders-Lumbar spread is close to an all time high and the question now is whether a reversion to the mean may soon be on the cards.

See article.