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One of the new product improvements Fastmarkets Lumber and Structural Panel subscribers have recently gained access to is our new Fastmarkets Metropolitan Dashboard, which provides key economic indicators of the top 20 metro areas in the US by market size. This snapshot of the data provides a quick tool to compare some key indicators along with Fastmarkets’ most up-to-date market size estimates for lumber and structural panels consumption.
Understanding metropolitan level housing and building material demand has become a bigger question as market participants try to better wrap their heads around disparate geographical trends in the shelter market. Building permits data are available at the metropolitan area level from the US Census and often used as a proxy to size the relative size of these markets.
But those tell only part of the story. Adding our metro area R&R demand estimates paints a much more complete picture of the actual market sizes for lumber and structural panels.
Watch Dustin Jalbert, senior economist in the Fastmarkets wood products team, outline what’s included in the dashboard
Let’s say there is a building materials retailer creatively named Company A that does business throughout Indiana, Kentucky and Ohio. They want to start expanding into new markets and are considering adding a branch to the west in St. Louis (population 2.8 million), to the south in Nashville (population 2.1 million) or to the east in Pittsburgh (population 2.4 million). They have been researching these markets and the missing piece is the total market size in each of these metropolitan areas. To keep it simple we will use lumber demand in 2023 and put structural panels and other years aside for now.
If Company A just looked at building permits to size these markets, they would see that there were just under 23,000 housing units authorized in Nashville in 2023. There were a mere 7,300 in St. Louis and a little under 5,000 and Pittsburgh. Based on this alone, Company A might think the demand for wood products in the Nashville area last year would be about 3x the wood products demand in the St. Louis area, and more than 4x demand in the Pittsburgh area. If market size estimates were limited to new residential construction alone, this would probably be true.
Adding metro area R&R demand estimates totally changes the perspective: We estimate that nearly 70% of lumber demand in the St. Louis metro area in 2023 was due to R&R activity. In the Pittsburgh metro, this share was closer to 80%. Lumber demand in Nashville, a relatively younger and faster-growing city, was mostly because of new construction.
By adding R&R demand on top of the residential demand estimates derived from building permits, we can now see that lumber demand in the Nashville area last year was about 33% more than in Pittsburgh and 50% more than in St. Louis. Nashville was still the metropolitan area with the most lumber demand last year, but if you thought demand was going to be 300% more than it was in Pittsburgh (equivalent to 4x as much) and it turned out to be 50% more instead, you might have a harder time breaking into the market than expected.
We can also see that there was more lumber demand in the Pittsburgh metro than in the St. Louis metro, despite fewer permits, due to a larger proportion of R&R activity. If Company A is geared toward serving pro R&R contractors and DIYers, Nashville might be the least attractive of these three markets.
While a snapshot of the lumber and structural panel market size is crucially important for benchmarking purposes and understanding CAPEX opportunities, relative growth trends in each market are also important to understand when weighing market opportunities.
This is also an area that our new metropolitan-level demand estimates can be useful. Let’s use another example to demonstrate the power of data at this level.
Let’s say we have a building material retailer, Company B, that sells softwood lumber, OSB and plywood. Company B has been evaluating the overall health of the business in the markets it operates in. The company has retail locations in both the Dallas and Houston metropolitan areas.
Company B wants to understand how their market share has changed since 2017, now that the wild market fluctuations have settled. For illustration purposes, we will once again narrow the focus to lumber. Between 2017 and 2023, their softwood lumber unit sales (volume) have grown by 10% in the Dallas division and 15% in the Houston division.
Now let’s also assume the company is already a Fastmarkets Analytics customer, so they know that from 2017 to 2023, US lumber consumption increased about 6%. Furthermore, lumber consumption in the US South Census region increased 10% over that same time. Based on that information alone, it might seem that the Dallas division was just been keeping pace with the market at 10% growth and the Houston division has been outpacing the market with 15% growth.
While comparing performance to the US South region is a reasonable benchmark to use for a company that only does business in the US South, our metropolitan-area demand estimates allow for an even better comparison basis than regional demand. Part of the reason for choosing Dallas and Houston in this illustration is the fact that they are in the same state, are close to the same total market size, but have had quite distinct trends over the last several years.
Our metropolitan area demand estimates suggest that from 2017 to 2023, lumber consumption from residential construction in the Dallas and Houston metros expanded 2% and 25%, respectively. These are shown in Table 1 along with the corresponding change in OSB demand for those metros.
Breaking the data down into metro area demand estimates yields a clear result. Dallas – the division with the comparatively slow 10% growth over time in total sales – has been outperforming the stagnant local market. And Houston – the division with the seemingly faster 15% growth over time – has been lagging behind in a market that has seen rapid growth in wood products demand. This is further illustrated in Figure 2, which shows the change in Company B’s market share in Dallas and Houston.
What action this company takes with this information is beyond the point of the hypothetical but the fact that the metropolitan area demand estimates yield totally opposite results about which division is underperforming and which is overperforming illustrates the power of having access to this data. Metro area demand estimates for lumber and structural panels allow for a much more precise gauge of how specific departments have been performing over time.
We can take a quick look at the variety of metro area profiles in the figure below. Each city is represented by a bubble, with our estimates of OSB demand in 2023 determining the size. Metro areas higher up on the graph relied more on R&R for OSB demand, while metro areas lower down were more heavily tilted to new residential construction. The bubbles are arranged left to right according to the total number of residential building permits issued per thousand population in 2023.
We can also look into broader economic and housing data as it pertains to metropolitan areas alongside our estimates of wood products demand for more powerful analysis. Housing inflation for renters and homebuyers, population growth, GDP, per capita income, unemployment rates and even employment by industry can all shed light on the local situation, and as the saying goes: all housing is local. There are almost too many different ways to look at the data to illustrate here, but the Fastmarkets wood products team is ready to do custom projects looking at specific markets in more depth.
Hopefully this illustration has demonstrated some of the ways in which we can use our metropolitan area demand to better serve your needs. This is not an exhaustive list but a showcase of some of the most fundamental ways to use the data.
Fastmarkets offers US housing market data, insights and forecasts, including prices for key materials like lumber, hardwood, softwood and timber from Fastmarkets. Speak to one of our experts to find out more.