The Determinants of Homebuilder Stock Price Exposure to Lumber: Production Cost versus Housing Demand
Liu, Peng; Lu, Xiaomeng; Tang, Ke
We study the economic linkage between homebuilder stock market performance and commodity futures market information on a major component of building materials—lumber. The price of lumber plays a dual role in determining homebuilder profits: it represents a production input cost and serves as a future housing demand indicator. Using all U.S. publicly listed homebuilder stocks, we show that the housing demand effect dominates the builder-lumber relationship. This effect is robust even after we control for the Federal Housing Finance Association (FHFA) housing price index (HPI). Our results further indicate that the slope of the lumber futures curve serves as a cross-market signal of future housing demand and thus of homebuilder stock market performance.
Cornell; homebuilder; lumber futures; housing demand; commodity exposure
An later version of this article is also available in eCommons.Liu, P., Lu, Z., & Tang, K. (2012). The determinants of homebuilder stock price exposure to lumber: Production cost versus housing demand. Journal of Housing Economics, 21(3), 211-222. doi: 10.1016/j.jhe.2012.05.003
Required Publisher Statement: © Cornell University. This report may not be reproduced or distributed without the express permission of the publisher.