Wood producst see continued crawl upwards

Wood producst see continued crawl upwards

August 10, 2011

By Rick Sohn,
Umpqua Coquille LLC

Fundamental improvement is steady, led by increased housing starts, and lower unsold inventory and interest rates. Five years ago, interest rates tipped us into an inevitable downturn. See below for details and a six-year span of prices and analysis of lumber, logs, housing, and mortgage stats.


Information and interpretation.

July is another decent-news month, in our snail’s pace crawl out of this depression in the wood products sector. Decreased stud and log prices are expected during the summer. There is a healthy and not unexpected increase in housing starts. Building permits were way ahead of starts when the last 4 months of each are added up, and still cumulatively outnumber starts by 50,000 in that period. That said, not all permits get built in a down market, but we are in a rising (slowly) market. The unsold home inventory of 6 months is the best since mid 2007. We finally have two consecutive months of less than 7 months unsold inventory, a move in the right direction. And, mortgage interest rates are down, since the stock market is volatile. Lower credit ratings could eventually cause interest rates to rise, as will inflation, when it comes.

Looking at June of 2006 statistics causes us to reflect on the economic cycle we are so slowly climbing out of. June 2006 could be viewed as one of the down-turning points in the cycle. The 2.6 months of unsold inventory, was the last time inventory would be below 3.0. With only one exception housing starts and building permits had been dropping steadily from January to June of 2006, but were still respectable. Mortgage interest rates often can put a damper on purchases, and the 6.68% rate in June of ’06 was the highest since 2002. It was these higher rates of interest that created an inevitable tipping point for people who could not afford the higher mortgage payments of their adjustable rate mortgages. Not only were they poorly qualified borrowers, but building homes on speculation had reached feverish levels, banks were more than happy to lend without down payments or without checking credit, so it was inevitable that the loan holders would not have the financial capacity to adjust to the interest rate increases, which led to the unprecedented defaults and foreclosures. In turn, the foreclosures caused unsold home inventory to surge and prices to drop, in a vicious cycle that repeated itself several times thereafter. The oversupply of homes decimated the new construction market, and will be years before we see a full recovery.

July, 2011 was also a memorable month in the development of the Roseburg, Oregon timber industry.   Roseburg Forest Products reached its 75th anniversary milestone . And, the founder of Sun Studs, Inc. and Lone Rock Timber, Fred Sohn, passed away.
Both companies are among many private, family firms that thrive in Douglas County, Oregon today, with multi-generational family leadership histories. These companies, and 9 others are featured in an exhibit at the Douglas County Fair, August 9-13. Douglas County Museum designed exhibits which lay out the history and survival of these 11 companies through good times and bad, with 600 combined years of business operation and community support.

Meanwhile, news reports of protests in the Elliott State Forest, and efforts to harvest and produce revenues on public lands, are familiar stories in the media. Rural counties are struggling to tell the story of forest land management for the good of all, but progress is slow. One particular victim, is the Douglas County library, with multiple branches, all under threat of closure, due to a shortage of County funds for its $2.5 million annual budget. Federal land harvests and revenues, based on forest-wide long term management plans, would be welcome in rural Oregon, for jobs, and also the county revenues that would keep libraries open.

Thanks to Shawn Church of Random Lengths and Bob Flynn of RISI for their reviews.
Data reports used with permission of:
1) Random Lengths. 2”x4”x8’ precision end trimmed hem-fir studs from southern Oregon mills. Price reported is Dollars per Thousand Board Feet for the most recent week. One “board foot” of product measures 12 inches by 12 inches by one inch thick.
2) RISI, 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.”
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 21/2 yrs back.
4) Regional Multiple Listing Service RMLSTM 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.
5) Freddie Mac. Primary Mortgage Market Survey. 30-year Fixed Rate Mortgages Since 1971, national averages. Updated weekly, current report is for the prior full month.
Issue #4-7. © Copyright Rick Sohn, Umpqua Coquille LLC. For permission to reprint for nominal fee, Email rsohn@umpquacoquille.com

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