Tag Archives: lumber

NRR: Lumber, log prices up. Home recovery expected to rise for next 3 years

Lumber, log prices up. Home recovery expected to rise for next 3 years

 

December 23, 2013

Timber Industry Report
By Rick Sohn PhD.
Umpqua Coquille LLC

Mills are competing for logs and prices are rising. This month is good for homebuyers, including a slight drop in Median Home values and a big drop in interest rates. Seven-year trend of lumber, logs, housing, and mortgage statistics are shown below.

chart-duy-dec13

Interpretation

Lumber and logs are both in nice rising price trends. Logs are climbing into a winter price range as mills compete for a limited supply to fill inventory. Economists say we are in a recovering housing market that could last another 3 years anyway. Expect to see continued strength in lumber and logs through the winter and beyond, with seasonal dips.

Building Permits were reported up to a record high level for the year, and as the media likes to say, finally recovering to the 2008 levels. That is NOT saying much. You will hear comparisons to 2008 a lot, since it was such a volatile, falling year. The 2008 high was 1.2 million permits and the low was 554,000. We will have made some real progress when housing and other stats are compared to 2007, or better yet, 2006.

The weekly average for 30-year fixed rate mortgages is bouncing around. It was at 4.57 the week of Sept 13, but dipped as low as 4.10, in the first week of November, and now is at 4.22. It is bouncing around these low levels.

At the same time, the Zillow report shows clearly that median home prices have plateau’ed and have started to dip slightly. The high for this cycle was August’s $163,000 national median. This mirrors the data for Portland from the Regional Multiple Listing Service data which also shows a home price drop, and reduced inventory of homes for sale, which fits the season. This is all very favorable for homebuyers.

In speaking with one local producer who sells into the European Clears market, recovery in that market has yet to occur. This coincides with the generally lackluster European economy, which is has worldwide impacts.

For the second month in a row, Housing Starts are not reported, due to the Government Shutdown. Data “Does not meet Production Standards.” According to the US Dept of Commerce, the results for September, October and November will be reported on Dec 18 – lets hope for a pleasant surprise.

Data reports used with permission of: 1Random Lengths. Kiln Dried 2×4-8′ PET #2/#2&Btr lumber. 2RISI, Log Lines. Douglas-fir #2 Sawmill Log, Southern Oregon region. 3 US Dept of Commerce. 4Regional Multiple Listing Service RMLSTM courtesy of Janet Johnston, Prudential Real EstateProfessionals, Roseburg, OR. Portland, Oregon data. 5Freddie Mac. National monthly average. 6Mortgage-X, national average, most recent week. 7Zillow.com, National Median Issue #6-11. © Copyright Rick Sohn, Umpqua Coquille LLC please e-mail rsohn@umpquacoquille.com

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August 13 Timber & log prices drop

Timber & log prices drop

 

September 9, 2013

Timber Industry Report
By Rick Sohn PhD.
Umpqua Coquille LLC

Interest rates increased last month, but real estate sales rose, as if homebuyers wanted to catch the bottom. Log prices dropped a lot, and lumber only somewhat, helping the mills. Seven-year trend of lumber, logs, housing, and mortgage statistics are shown below.

chart-sohnsept2013

Interpretation
The price of lumber has decreased, but the price of logs has REALLY dropped. Net result? Logs are more affordable, mills are breathing a sigh of relief, and are making some money.

Fire danger has decreased in areas of the Pacific Northwest where it has been raining, This will ultimately help keep log prices down since logging operations can proceed and logs become more plentiful. Fire season still has life however, and things can change with a dry September.

According to Janet Johnson, Prudential Realty, The Roseburg Real Estate market has “exploded” with more offers being written and properties coming on the market, in the last few weeks. Judie Dunken, with the Dunken Group in Portland, is similarly positioned. RMLS reports that the Portland market has closed 10% more sales than last month, and that number for July is the best since 2005. The median home sales price in Portland is up to $280,000 and the average is $326,000. Rising interest rates, now 4.40%, have not hurt the summer home market, even though they are up over a full percentage point compared to the beginning of 2013. Many people are saying that buyers seem to be jumping in, before the interest rates rise even further.

The Portland unsold inventory remains below 3 months. The time on the market is 63 days, one month less time on the market than a year ago. Compare this to Roseburg, where there are 9.5 months of unsold inventory on the market, and an average market time of 190 days – also 30 days less time on the market than a year ago. While both markets are making significant improvements, its slower in a rural area like Roseburg than an urban area like Portland. This discrepancy leads to the following conclusions (with pockets of exceptions): there is an overall sellers market in Portland, but an overall buyer’s market in Roseburg and other rural towns.

This major difference in housing markets mirrors the economic recoveries that have occurred in rural and urban Oregon. If only rural Oregon could cut – or even salvage– more timber, rather than let it burn or get devoured by massive populations of bugs, the economies could improve.

Housing starts and building permits are showing some improvement this month, but are well short of the 1 million levels, reached in the Spring of 2013. Home prices continue to rise, albeit more slowly. According to Zillow, median home price rose the most in May, where it increased $1,300 over April, and has continued trending up with lower increases since then, as shown in the chart above.

It will be interesting to see if the gradual increases in home values and the rate of sales can continue, despite the rising interest rates. If so, there is hope that the housing starts and building permits will rise once again. This would really help the overall economy. We are still at typical deep recession levels of housing starts and building permits.

Data reports used with permission of:
1) Random Lengths. Through Sept. 2012, 2”x4”x8’ precision end trimmed hem-fir stud grade from Southern Oregon mills. Starting Oct. 2012, consolidated with 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.
2) RISI, Log Lines. Douglas-fir #2 Sawmill Log, Average Region 3 Southern Oregon price, reported in Dollars per Thousand Board Feet of logs, Scribner Scale. The standardized Scribner Scale includes expected saw trim waste, so a log board foot is much more wood volume 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. Recent reports are often revised in bold. Also, major revision made each May, reaching 2 1/2 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.
6) Mortgage-X Most recent weekly rate of 30-year Fixed Rate Mortgages, national average.
7) Zillow.com Median value of homes sold in the United States during the month, weighted according to each area population. The Median removes the effect of outlier expensive homes, with equal numbers of homes above and below the median value each month. Revisions in bold
Issue #6-8. © Copyright Rick Sohn, Umpqua Coquille LLC.

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PRAGCAP: Lumber Futures Could be Pointing to Improved Residential Construction

Lumber Futures Could be Pointing to Improved Residential Construction

By Walter Kurtz, Sober Look

Lumber futures turned out to be a good predictor of US housing starts. The large decline earlier this year (see post) translated into weaker than expected residential construction in June (see post). That means we should certainly pay close attention to lumber as a leading indicator. And July is showing a steady increase in prices, potentially pointing to improving demand (see figure 1).

After a disappointing result in June, is construction picking up this month ? Many economists think so. The key data that researchers point to is the Homebuilders’ survey, which is at the highest levels since 2006 (see figure 2).

The index had certainly diverged from housing starts in the past, but the combination of this survey and higher lumber prices may be pointing to an improvement in residential construction for July. The US economy could certainly use it.

Lumber futures

(Figure 1)

Homebuilder survey

(Figure 2 – Source: DB)

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Prices down, rates up, Housing starts wobble

Prices down, rates up, Housing starts wobble

July 11, 2013

Timber Industry Report
By Rick Sohn, PhD
Coquille LLC

Good news/bad news. Product prices are down and mortgage rates are up. Housing starts are lackluster, but unsold inventory is down. Seven-year trend of lumber, logs, housing, and mortgage statistics are shown below.

chart-sohn-july13

Interpretation
The housing recovery has entered a readjustment phase. Product prices have decreased one third in just two months, reacting to over-supply, from a high of $445 down to $290 per Thousand Board Feet. There has been an equally dramatic increase in the 30-year fixed rate mortgage – a half percentage point rise in the last week alone, and a and a full percentage point rise in the last 7 weeks.

Housing Starts and Building Permits are also down, compared to the regular monthly records over the last year.

In good news, Median home prices continue to inch up, but are still well below previous highs. And unsold home inventories have continued to drop, now to their lowest level in 7 years – 2.5 months.

Good news/bad news also involves log prices, which normally trail product prices. Log prices tracked here, have stayed within a $20 range between January and June, after an $89 rise from December to January 2013, and a $37 rise from October to December. But the latest drop in product prices, if it holds for the rest of the building season, suggests that log prices will drop quite a bit further in the next few months.

If you are a mill, the combination of slowly adjusting log prices and decreasing product prices creates a squeeze on net income.

Industry economic analysts at a session hosted by Northwest Farm Credit Services, expressed optimism about the future of log and lumber consumption and prices, over the next 3-5 years. However the industry itself remains skeptical, and Random Lengths this week, reported “10 reasons to be cautious about the housing recovery.” The reasons include the rise in interest rates, and a drop in the percentage of home ownership from 69.1% to 65% and an accompanying increase in apartments being built, which require only about one third as much wood as a home.

Weyerhaeuser has shown its strong optimism with the long term wood products business recently. They purchased the Longview Timber lands, located in the Northwest. This purchase, for $2.65 billion, added 1/3 to its Pacific Northwest holdings, an addition of 645,000 acres. This brings Weyerhaeuser’s total for the Pacific Northwest to 2.6 million acres, and, and nearly 21 million acres in North America.

There is a breather in some parts of the recovery, according to the economists, and the pent up demand of people to own a new house, the overall trend of the wood products industry should remain very positive over the next few years. Most likely, the slowdown in some sectors is seasonal and the result of rebalancing inventories and production that creates growing pains.

Data reports used with permission of:
1) Random Lengths. Through Sept. 2012, 2”x4”x8’ precision end trimmed hem-fir stud grade from Southern Oregon mills. Starting Oct. 2012, consolidated with 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.
2) RISI, Log Lines. Douglas-fir #2 Sawmill Log, Average Region 3 Southern Oregon price. Current report is for the prior month, in Dollars per Thousand Board Feet of logs, Scribner Scale. The standardized Scribner Scale includes expected saw trim waste, so a log board foot is much more wood volume 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.
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.
6) Mortgage-X Most recent weekly rate of 30-year Fixed Rate Mortgages, national average.
7) Zillow.com Median value of homes sold in the United States during the month, weighted according toeach area population. The Median removes the effect of outlier expensive homes, with equal numbers of homes above and below the median value each month. Revisions in bold
Issue #6-6. © Copyright Rick Sohn, Umpqua Coquille LLC.

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Go Wood: Wood Science 101 (10) – Where Does Lumber Come From?

Wood Science 101 (10) – Where Does Lumber Come From?

One of the more interesting phenomena of today’s world is the insulation we have from the source of our sustenance, or raw materials. Many modern folk would have a hard time explaining where the natural gas in their home comes from, or how bread is made, or even what the very walls around them are made of.So when Mike Wolcott sent me some nice photos of what I call a “lumber log”, that is a re-constructed log made of the lumber and bark sawn from it, I thought it a good opportunity to share just a little bit of the story of lumber.

http://www.vincentkohler.ch/billon.html

This artistic work is a nice way to demonstrate in a visual way just where lumber comes from. One sees many different sizes of boards, and a cant in the center of the log; it begins to give one a sense of how many different products can be produced from a log depending on how the log is sawn up. And the placement of all cuts, and therefore the size and value of each board produced, depends most importantly on the very first cut into the log.

In the early 1970’s, the US Forest Service developed a computer program that mathematically calculated the highest volume of lumber that could be sawn from a log of specified dimensions based on what it called the “best opening face“.  Soon, computerized sawing equipment incorporated this computer algorithm into their equipment along with scanning technology that allowed the log to be spun and scanned prior to sawing, thereby allowing the computer to determine just exactly where that first critical cut should be made. The resulting “face” of the log. then, would produce the widest pieces of lumber, and subsequent narrower lumber would be produced as the log is turned.  In the photograph above, the sawyer, or the computer he operated, determined that the best first cut would be on what is the top of the log in the picture. The cut was made just at the edges of the top piece of bark, producing a “slab” from which the top two narrow boards were re-sawn. Then, once the slab was sent on its way, the two-by-six and two-by-eight pieces (the third and fourth boards from top) were sawn and sent on to an “edger” where the square edges of the boards were formed as the rounded corners were sawn away. The log was then rotated and sawing continued on the next face, with most of the pieces in this case being sent on to a “re-saw” or a “gang-saw” to produce the narrower strips you see.

Not long after the computerized saws were capable of producing the highest amount of lumber, or “yield” from a log, technologists figured out how to allow the mill operators to assign market values to the different sizes of lumber in “value tables” built into the software. This allowed the mill operator to then produce not the highest “yield” of lumber in board feet (one board foot is equal to a square piece of wood 12 inches long, by 12 inches wide, by 1 inch thick), but the highest value of lumber in dollars based on ever-changing current lumber market values.

This system works well for softwood lumber, for which most of the value is determined by the dimension of each piece. But in hardwood lumber production, the real value of the lumber is determined by the internal characteristics of the log…the number and size of knots and other defects, the coloring and figuring of the wood, and the surface area of “clear units” in each piece of lumber. These characteristics are determined again by the sawing technique used for each log. The three most common methods of sawing hardwood logs are called “plain or flat sawn” (the most common and highest yielding method), quarter-sawn (the most popular for certain applications where highly figured wood is desired), and rift sawn (used when straight-grained lumber is highly desired).

The following is an excellent high-quality educational video from the folks at the Frank Miller Lumber Company, an Indiana lumber producer that specializes in quartersawn hardwood. It provides a nice way to visualize the sawing process one has to try to imagine when looking at a piece of lumber. http://gowood.blogspot.com/2013/07/wood-science-101-10-where-does-lumber.html

And that’s how it’s done. Show the video to your kids, and then take them to the nearest lumberyard. You might be surprised how much fun you’ll all have.

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CR: Lumber Prices off 25% from recent peak

Lumber Prices off 25% from recent peak

by Bill McBride on 7/07/2013 

Just two months ago I mentioned that lumber prices were nearing the housing bubble highs. Since then prices have declined sharply, with prices off about 25% from the highs in early May.

Some of the decline could be related to additional supply coming on the market, and some due to less buying from China (several sources are reporting that China has pulled back significantly on buying North American lumber).

On additional supply, a few months ago the WSJ had an article about some producers increasing supply:

Georgia-Pacific, the largest U.S. producer of plywood … plans to invest about $400 million over the next three years to boost softwood plywood and lumber capacity by 20%.

Lumcber PricesClick on graph for larger image in graph gallery.

This graph shows two measures of lumber prices (not plywood): 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures.

Lumber prices are now about 25% off the recent highs.

Read more at http://www.calculatedriskblog.com/2013/07/lumber-prices-off-25-from-recent-peak.html#6cFiluGhPTIo9Fcv.99

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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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