Category: Education

Summary:

Steady outtake, steady demand, steady prices—that’s a recipe for a dull trade with thin margins.

Seasonally, May into early June is dead money. “Sell in May and go away” exists for a reason. But this year, the takeaway is just firm enough to keep everyone from stepping away entirely. Add in historically lower field inventories (possibly by design), and the market doesn’t have the cushion to relax.

Right now, the industry is playing prevent defense—always on the field, focused on not losing. That’s a tough way to operate in a commodity business, especially when costs are sticky and conviction is low.

Flip Side:

I think what most are missing is that there are inventory pockets—and they’re full. It’s not enough to supply the whole market, but it’s a real risk for the guys sitting on it. And right now, there’s no appetite to hedge any of it.

In a market with no clear direction, that’s a problem. Everyone needs to stay disciplined—we’ve seen how quickly this can turn into a bottomless pit over the past year. It doesn’t take much. Hedge 20–30%, give yourself some cover, and live with it.

Step back and nothing has really changed in three years. The guys who bought wood and consistently hedged made money on the futures side—that’s just fact.

I think the weakness is running out of gas… but I’ve said that before.

Starting back in June of 2023.

Technical:

Last week’s trade was a step back technically. It’s not a sell signal, but it did give back some hard-earned momentum. Most oscillators have rolled back to neutral-to-negative, and it’s going to take some work to turn those higher again. The fact one stayed positive since mid-April just reinforces how sideways this market really is.

Levels to watch:
July futures need a close over 603.50—the recent spike high—to confirm things are tightening underneath the surface.

On the downside, there’s real air between 580 and 560. That zone keeps catching volume month after month, with a few thousand contracts likely changing hands there since January. It’s become a magnet.

Markets tend to build a base in areas like that… and eventually move higher from them.

Recap:

The futures trade was dominated by the roll last week. That said, it made a new contract low and then rallied. We saw that pattern a week earlier—and frankly, we’ve seen some version of it for nearly two years now. Rallies continue to lack momentum, fail quickly, and ultimately find themselves testing new lows.

A technician put it best last week: these trends are neither bullish nor bearish—they’re bullshit. There’s no trend, no follow‑through, and no conviction.

The broader economic backdrop for housing remains decisively neutral, and neutral markets have a nasty habit of killing their own rallies without outside help. That’s exactly where we sit today.

So, let’s look at a few housing headlines for more color.

Housing Headlines 

• Existing home sales remain sluggish.
March existing‑home sales fell 3.6% month‑over‑month to an annualized pace just under 4.0 million units, the weakest March pace since 2009. Sales declined in all four regions, underscoring just how little organic momentum exists in the market. [markets.bu…nsider.com]

Existing home sales are projected to stay in line with 23-24 and 25. Without a rate cut expect slow sales and low inventories.

 The macro effect:

“This has caused multifamily executives to lower their expectations for total 2026 multifamily sales volume and starts.”

• First‑time buyers are effectively sidelined.
First‑time buyers accounted for only 21% of transactions, a record low and well under the historical norm near 40%. The market is increasingly split between equity‑rich owners and would‑be entrants who simply can’t make the math work. [crosscount…rtgage.com] Can’t make it work…. nice.

From NAR, first time home buyers fell to a record low. They made up only 21%. That group was always in the high 30 percentile.

• Inventory is improving—but not enough to matter .
Active listings are rising year over year, and months’ supply has crept above four months, technically closer to “balanced.” But inventory is still well below pre‑pandemic norms, offering just enough supply to cap prices—not enough to stimulate volume. [mortgagetech.ice.com]

• Prices refuse to break—only flatten.
Despite weaker sales, median prices continue to grind higher on a year‑over‑year basis, driven by limited supply and locked‑in owners. Zillow expects roughly flat price appreciation in 2026, reinforcing the idea of a capped, sideways market rather than a corrective one. [zillow.com]

Builders I work with are staying on course and keeping production at the planned 2026 amount. “Head down and grind ahead” seemed to be the common theme.

• Mortgage rates remain a headwind, not a catalyst.
Rates dipped briefly below 6% earlier this year, but volatility tied to macro uncertainty pushed them back toward the mid‑6% range. That swing was enough to choke off affordability gains but not enough to force capitulation selling. [cnbc.com]

To sum it up:

There’s nothing here that argues for sustained upside—and nothing ugly enough to force a structural reset. Housing is stuck in neutral, and lumber reflects that reality perfectly. Rallies fail because they’re supposed to. Weakness finds buyers because costs, supply, and discounts still matter.

Until affordability actually improves or demand meaningfully breaks—this remains a market that chops itself to death, one failed rally at a time. It bothers me every time we use the affordability excuse. The is more fundamental issues involved.

Technical:

The May contract has found support in the $570 area. The fact that there are EFP’s available this time has brought the buyers back to the futures market at a price. This hand to mouth environment tends to magnify deals. Today it is in futures.

The starts projection is for 1.38. Permits are 1.39.

The weekly wedge pattern keeps getting tighter. The breakout looks to be a few weeks from now. May expiration could be interesting.

Did it turn into a battle when it should have been a rout? The cash market is very active with less supply. Things are tight, and some mills are OTM for a day. We are where we expected to be except for the issue of $100 crude. No one could have projected it. Without the Iran issue futures would be $50 higher and blowing out the funds, but instead we have to scratch and claw for a few bucks. The question today is if we missed the acceleration move or not?  We have the rally but now can we get the run?

Crude is becoming “more of the same.” It isn’t going back down, but the likelihood of larger crude restriction is lessening every day. In the same vein, the US has made clear that higher crude is a small price to pay. The end result,  a long drawn out fight sending the spec longs in crude elsewhere. That begins more of the same.

So, what does the battle look like?

The Tight Market:

Companies large and small are using the same strategy of limiting Cap X to keep costs down in 2026. Inventory is the largest cost so cut it and you cut costs. Sound economics to me except for the fact that when your business is a commodity, you need that commodity to remain in business. What we saw last week was a push by many firms to at least fill in.

It is spring. We see a natural tightness to the market every year. Demand numbers are already set. It becomes a time to buy.

The Demand Struggle:

The housing data is weak. New and existing home sales have pulled back even with the multiplier. Months of inventories are up sharply. Even Canadian starts are projected to be off for the next few years.

There are two debates going of when the housing market became broken. The first was the obvious 2008. Many economists believe that by the mid-teens that problem was fixed. They believe that it again happened after 2018 when the housing market broke and never recovered. We are talking about the typical economic forces, not covid, etc. My point is that in either case we had an employment fear for the first time home buyer. Today, looking at the projection of a 30% unemployment rate for new graduates, I would say nothing has changed since 08. Employment and employment sentiment are the key drivers, not rates, not affordability, just employment.

Finally, open interest continues to erode. We are seeing a sharp drop in industry longs as the market rallies. COT showed a 898 decrease while the fund shorts exited 588. The industry is putting money in the back. The funds are forced to lighten up with large rallies. It is true textbook trading.

Technical:

I can’t say this very often, but the technicals are neutral at best when the fundamentals are strong. Another lower session will force a cross of a few oscillators to negative. This isn’t a sell signal as they tend to go back and forth before it becomes a sell signal.

The focus is on 618.50. The market needs a close over it. On Friday the high was 614.50. We are very close to gaining some momentum again. I believe it is going on for 5 weeks that 618.50 was the objective. The hitters are getting tired and the winds are blowing in. We need to get through it this week.

Daily Bulletin: