Legendary investor Warren Buffett and his investment vehicle, Berkshire Hathaway (BRK.B -0.01%), have made several big bets on a recovery in the housing market. He's been buying up everything from residential mortgages to real-estate brokerages. That's on top of large investments in banks and building materials.
For the most part, he has been early, but that's by design. He knows that when things bounce back it will be surprisingly fast. He also sees a direct relationship with the housing market's recovery to a pickup in employment. According to Buffett: "We will come back big time on employment when residential construction comes back. You will be surprised, in my view, how fast employment changes when that happens."
That turn just might be coming if you read into the tree leaves from Plum Creek Timber's (PCL.DL) latest earnings conference call. On the call, CEO Rick Holley had this to say:
Lumber and wood panel prices have increased significantly, encouraging lumber mills to increase their output. With continued strong lumber and panel pricing, and the expectation for continued improvement in demand in the residential construction and repair and remodel markets, we expect growth in U.S. lumber production in 2013 to exceed that of 2012. Mill operators are reinvesting in their mills and some are adding shifts. Both of these actions will lead to improved sawlog demand and pricing. We experienced sharply improving sawlog prices on the West Coast, where mills have recently added shifts, and where logging conditions have constrained supply. We believe this could be approaching a similar tipping point in the South due in 2013 as lumber production in the region increases and constraints in logging capacity begin to be felt.
Further along in the call, CFO David Lambert reiterated this sentiment when he said: "Southern sawmill owners are running extra hours to increase production to meet demand, and many are at the point where they are contemplating adding employees and an additional shift to meet the expected demand growth this year."
There's only one reason lumber and wood panel prices are going up, it's because they are going into new houses. You don't have to read too much into it to realize that. Just take a look at the latest preliminary sales report from KB Home (KBH 4.66%) which showed sales jumping 54% over the same period last year. While the company doesn't see that relative improvement continuing throughout the quarter, it is seeing ongoing overall improvement in the housing market.
Fellow homebuilder D.R. Horton (DHI 3.47%) recently reported its most profitable quarter since 2007. It saw increases in homes sold, closed, and in backlog compared to last year along with an increase in average selling prices. Because of this the company is increasing its investments to capture this rising demand which has the company "looking forward to the spring selling season with optimism," according to Chairman of the Board Donald Horton.
I leave you with a quote from Daniel Fulton, the CEO of integrated forest product company and top 20 home builder, Weyerhaeuser (WY 0.76%) from its quarterly conference call last week:
We also incurred increased labor costs as we began to staff up to meet an anticipated increase in operating postures in 2013 ... As we enter 2013, we are well positioned to respond to the increased demand from new housing starts, as well as the repair and remodel market. We've come a long way in this business, and we have more opportunity in front of us ... With this improving momentum, we'll be opening a significant number of new communities during the year, which will enable us to meet our growing demand.
While timberlands might not be the most exciting business in the world, you can learn a lot by listening to what their management teams have to say about the housing and construction markets. From what they are seeing, we appear to be well on our way to a recovery in housing with a follow through improvement in employment. You don't want to miss that turn, because as Warren Buffett will remind you, you'll be surprised at how quickly the recovery happens once housing picks up.
