Some Big Winners In A Weak Housing Recovery

Housing analyst Barbara K. Allen of Kidder, Peabody & Co. recently reduced her estimate of housing starts for 1991 from 1.22 million units to 1.05 million--mainly because the industry is facing severe capital constraints from lenders. Yet she continues to favor homebuilding stocks, many of which have already doubled since last November.

The reason: It is the small private homebuilders who normally account for 95% of single-family housing starts, and they are being squeezed out of the market. Meanwhile, the large, publicly traded homebuilders have strong credit lines. "Even if housing demand doesn't jump as strongly as it did in prior recoveries," she says, "it will still be extraordinarily strong in relation to supply, and the big builders will benefit."

A similar explanation lies behind the price surge in the only industrial raw material that is riding high: lumber. Although demand for lumber is closely related to housing starts--and the current rebound in starts is one of the weakest in decades--lumber prices have soared by 50% this spring. Sparking the increase have been government plans to restrict access to some 40% of U. S.-owned forests in the Pacific Northwest, to protect the habitat of the northern spotted owl. The loss of that supply, say industry observers, means higher lumber prices and sharply higher profits for some forest-products companies, even if the housing recovery remains below par.

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