Housing and wood products: twin industries in the economic doldrums

By: | at 08:00 PM | Channel(s): International Trade  

But the longer-term looks brighter

By Peter A. Buxbaum, AJOT

As the housing market goes, so goes the wood products industry. Housing, both new construction and existing units, make up about 50 percent of wood product sales.
The recent housing implosion has left both the housing and wood products industries struggling to recover. While new housing is typically referenced to measure the health of the wood products industry, existing housing is important also because it is a major element of the sales at retail home centers. New construction and remodeling activities define the major demand streams for wood products, and both are down.
It’s not that the state of the two industries are at their bottoms, however. That occurred in late 2008 to early 2009. But with an economic recovery thought to be on the horizon, expectations for housing and wood products had perked up. The reality has been disappointing, thanks to an apparent return to the economic doldrums. There may be some bright spots here and there but the overall picture is negative, at least for now.
The current recession is “probably the worst-case scenario one could imagine for the forestry sector,” said John Anderson, an economist at the American Farm Bureau Federation in Washington. “Not only did we have the recession’s impact, but the precipitous drop originated in the housing sector, and that hit the timber products industry hard.”
Year-on-year results show that 2009 was the worst year for housing starts since 1945, as a result of which softwood lumber production has been nearly halved. Housing starts fell from 906,000 in 2008 to 554,000 in 2009. In response, U.S. production of softwood lumber plummeted from 40.5 billion board feet in 2005 to just 21.2 billion board feet in 2009, according to research performed by Ivan Eastin, director of the Center for International Trade in Forest Products at the University of Washington. In the west, softwood lumber production declined from 19.3 billion board feet in 2005 to just 9.5 billion board feet in 2009 while the number of sawmills operating in the western region fell from 240 in 2006 to 175 in 2009. The shortfall in demand has been accompanied by falling timber and lumber prices.
The latest numbers from the federal government are less than heartening. U.S. housing starts in May 2010, the most recent month for which figures are available, were at a seasonally adjusted annual rate of 593,000, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development. This is 10 percent below the April estimate of 659,000 but 7.8 percent above the May 2009. The May 2010 rate is the lowest since December of last year. Building permits for single-family houses in May were 10 percent below the April figure.
Nor is the United States the only country suffering from a battered housing market. Housing starts, the largest driver of wood demand in Japan, were down by 28 percent in 2009, reaching their lowest level since 1965, according to Eastin. On the bright side, wood housing starts fell by only 16.8 percent, reflecting an increase in the market share of wood housing as a proportion of total housing in Japan.
Some experts attributed the U.S. housing numbers to the expiration of a federal tax credit of up to $8,000 for first-time home buyers. Others don’t deny the tax credit played a role but attribute the decline to other factors as well.
“We believe our customers’ buying decisions have been driven more by consumer confidence than by the tax credit,” said Joel Rassman, chief financial officer at Toll Brothers Inc., a house builder headquartered in Horsham, Pa. “We believe the volatility in the financial markets and the high U.S. unemployment rate continue to weigh on the nation’s psyche. At the moment, consumers view the economic glass as half empty: volatile financial markets, global deficit concerns and the oil spill in the Gulf are all contributing to this gloom.”
Perhaps a more accurate depiction of the situation for the lum

Peter Buxbaum's avatar

American Journal of Transportation

More on Peter Buxbaum
Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly. He was educated at Columbia University.