By Rick Sohn, PhD
Umqua Coquille LLC
Housing starts are down, mortgage rates are trending up, and wood products markets are in a holding pattern caused by the elections and the trade dispute between Canada and the United States. Recent trends of lumber, logs, home construction, and housing markets, are compared to 2009 and 2005.
* A lumber board foot measures 12 inches by 12 inches by 1 inch. The log board foot is based on an industry standard pattern for sawing straight boards from round, tapered logs. The leftover wood and bark become chips and sawdust which are used for paper, fiberboard, and fuel to make electric power. In the Pacific Northwest two trucks of logs will become enough wood product to build a new home.
Interpretation and Looking Ahead.
Product prices are falling, as indicated by the 2×4 96-inch stud price shown. Random Lengths bases the gradual dip on the unresolved trade dispute with Canada (see below), as well as the pending presidential election. Log prices are steady, within a $15 range that started last January, but will likely end this month.
Ouch!! Housing starts tumbled unexpectedly to a level not seen since March 2015, 9% below last month. There is consolation in the building permits number which is the highest of the year.
The most recent week mortgage rate is up to 3.52, from 3.42 last month. The monthly averages are climbing as well. Any rate below 4% is extremely attractive, compared to the long term. Soon, not sure when, people will look back and wonder why they did not take advantage of the low interest rates.
Like log prices, Portland unsold inventory of homes is also very steady. The rate, 1.9 or 2.0 for each reporting period – except during the Great Recession when the unsold inventory was so much higher – is coincidental. In Sept ‘05 the unsold inventory was on the rise. In Sept ’09 and ‘15 it was falling. By Sept ‘16, it is slowly rising again, but still in a healthy range.
With the national average Zillow home value of $189,400 per home, where are we in the cycle? The peak home value in April 2007 was $196,600. The subsequent low point – January 2012 – came after a 4 ¾ year plunge to $152,600, nearly 29%. The cycle is also 4 ¾ years into price recovery. Recovery of another $7,200 per average home, to catch up to April 2007, will take until sometime between May and July 2017 – a full 10 years after the previous peak, likely a 5 ½ years recovery. Zillow measures all areas of the country, not just major metropolitan areas, which have recovered more quickly.
There is a lot of trade dispute discussion going on, according to Random Lengths, pending a duty on Canadian lumber marketed in the United States. No lawsuits yet. Both duties and quotas are being discussed. Over the last 20 years from 1995-2015, an average of 31% of Canadian softwood products have been exported to the US from Canada. With 36 million people in Canada, compared to 324 million people in our country, no wonder Canada wants to export lumber products. Canada is a big, open, forested country. But we Americans have our own forests and facilities, we value domestic jobs, and we need active forest management in lieu of forest fires, for economic and public health reasons.
Figures in bold are adjusted monthly. Data used with permission. 1Random Lengths. Recent week Kiln Dried 2×4-8′ PET #2/#2&Btr lumber. 2RISI, Log Lines. Douglas-fir #2 Sawmill Log Average, Southern Oregon region. 3 Annualized monthly. US Dept of Commerce. 4Portland, Oregon Regional Multiple Listing Service, courtesy of Janet Johnston, Prudential Real Estate Professionals, Roseburg, OR. 5Freddie Mac. National monthly average. 6 Federal Reserve Bank of St Louis Economic Research, National Average, most recent week. 7Zillow.com, National Median home value. (http://www.zillow.com/or/). © Copyright Rick Sohn, Umpqua Coquille LLC. Issue #9-10. For more information, questions, or permission to reprint, please e-mail me at [email protected]