New records for lumber, logs, housing starts

By Rick Sohn, PhD
Umpqua Coqullie LLC

New records for lumber, logs, housing starts, building permits, and unsold inventory, while mortgage rates remain low.  Consistent annual improvement  is expected.  Five-year data of lumber, logs, housing, and mortgage statistics are shown below.

  Prices in Dollars per Thousand Board Feet

Thousands of  Housing Units 

Months of  Inventory of Unsold Homes

Percentage interest rate 

Interpretation

Supply and demand are so much a part of the wood products industry prices.  Both housing starts and building permits posted new highs, over 900, and the highest since 2008.  Production capacity at the mills and in the woods remain constrained, pushing prices higher.  Stud prices at $335 are at a 7-year high, while log prices at $607are at a 6-year high.

Logging companies do not have the cable yarding capacity they had 6 years ago, and the wet season constrains logging to gravel road systems, which decreases runoff of mud into streams.  This year, many companies do not have as many logging units prepared for winter work, which also pushes logging prices higher.

The Financial Times reports a surge in March lumber futures to a high of $380 in mid-January, with a high near $400 in late December, while currently over $350.   The futures prices surged nearly 45% in 2012, as demand rose.  The lumber and timber supply constraints discussed above, along with demand from China, and the Canadian pine beetle epidemic, have all contribute to the increased prices, according to the Times.  Paul Jannke of Forest Economic Advisors in an interview with the Times, forecasts a 10-15% increase per year “for the next 3 years at least.”  Industry predictions are for a 20% rise in homebuilding in 2013, over 2012.

The healthy log and product prices will be short-lived if woods capacity increases and mills jump into more production by adding shifts, in excess of the increase in demand.  Temporarily, logging capacity will limit the growth.  Fortunately for the business, producers are reticent to increase production at the still-anemic levels of housing starts and building permits, compared to the historic levels, where normally housing is above 1.5 million starts and permits.  This allows companies to recapture some of the losses of the last 5 years and become healthier.

Data reports used with permission of:

¹Random Lengths.  Through Sept. 2012, 2”x4”x8’ precision end trimmed hem-fir stud grade from Southern Oregon mills.  Starting Oct. 2012 the stud grade was consolidated with and is now reported as  Kiln Dried Studs, Coast Hem-Fir 2x4x8’ PET #2/#2&Btr. Price reported is Dollars per Thousand Board Feet, generally the third week of the month.  One “board foot” of product measures 12 inches by 12 inches by one inch thick.

²RISI, Log Lines.   Douglas-fir #2 Sawmill Log Average Region 5 price.  Current report is for the prior month.  Dollars per Thousand Board Feet of logs are reported using standardized log measurements from the “Scribner log table,” which includes expected saw trim.  This is much larger than a product board foot.

³ Dept. of Commerce, US Census Bureau.   New Residential Housing Starts and New Residential Construction Permits, seasonally adjusted, annual rate.  Current report is for the prior month.   Recent reports are often revised in bold.  Also, major revision made each May, reaching 2 1/2  yrs back.

⁴Regional Multiple Listing Service RMLS^TM  data, courtesy of Janet Johnston, Prudential Real Estate Professionals  Broker, Roseburg, OR.  Inventory of Unsold Homes (Ratio of Active Listings to Closed Sales) in Portland Oregon, for most recent month available.

⁵Freddie Mac.  Primary Mortgage Market Survey.  30-year Fixed Rate Mortgages Since 1971, national averages.  Updated weekly, current report is for the prior full month.

⁶Mortgage-X Most recent weekly rate of 30-year Fixed Rate Mortgages, national average.

Issue  #6-1. © Copyright Rick Sohn, Umpqua Coquille LLC.   For permission to reprint, e-mail  [email protected]

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