Wood product prices fall hard

Wood product prices fall hard

 June 12, 2013

By Rick Sohn,
Umpqua Coquille LLC

Zillow’s average home value is up $10,000 from its 2011 low. Building permits broke 1 million, finally, and unsold inventories are at a 7-year low. Interest rates may be starting back up, but are still historically VERY low. Seven-year trend of lumber, logs, housing, and mortgage statistics are shown below.

 chart-sohn-june13

Interpretation

Lumber price has fallen to $370 from $445 last month. According to Random Lengths, prices in many other solid wood products are also falling hard. Random Lengths reports that this was caused by a desire of wholesalers to build inventories, followed by a widespread satisfaction of that demand.

Log prices have fallen, but not much, compared to lumber. A continued fall in log prices would normally be expected next month, due to the double pressure of decreased demand for finished products, and increased log supply. But the early harsh fire season may cause inventory expansion by mills, and log prices could stabilize or fall less than in a normal year.

Home values reached a milestone, according to Zillow. From a low national average of $148,300 in Oct. and Nov. 2011, the price has come up $10,000 in 19 months, to $158,300.

Building Permits surpassed 1 million units for the first time since June of 2008 nearly 5 years ago. We are still waiting for a month when both starts and permits print above 1 million units in the same month.

Unsold inventories reached a new record low of 3.1 months in the Portland, Oregon market – a level not seen since 2006!!!

While the monthly average is down, the most recent 30-year fixed mortgage rate has turned up. An announcement by Chairman of the FED, Bernancke, that monetary policy could tighten up within the next year, will eventually lead to higher interest rates. This is the only dark cloud on the horizon (besides unrelenting high unemployment), that could slow homebuilding.

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 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.
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.
7Zillow.com Median value of homes sold in the United States during the month, weighted according to the population of each area. The Median is the midpoint value with equal numbers of homes selling above and below this value each month. Medians tend to remove the effect of outlier values. Revisions in bold
Issue #6-5. © Copyright Rick Sohn, Umpqua Coquille LLC.

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