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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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Governor wants to help Ore. timber industry by sharing wildfire costs with industry, state

Governor wants to help Ore. timber industry by sharing wildfire costs with industry, state

By JEFF BARNARD  AP Environmental Writer

January 19, 2013

GRANTS PASS, Oregon — For years, Oregon’s major timberland owners have felt they were paying too much of the cost of fighting wildfires, especially in years when blazes stayed relatively small.

A bill in Gov. John Kitzhaber’s budget would allocate $3.6 million over the next two years to change the payment formula, so the state picks up a bigger share of the costs in years when fires don’t rage out of control. The proposal also would pay up to $6 million to keep two air tankers on call and other resources to keep minor wildfires from getting big and expensive.

“Landowners since 1993 have paid 82 percent of the cost” of putting out large fires, said Kristin McNitt, executive director of the Oregon Forest Industry Council, which represents the timber industry. “And it’s killing us.”

The governor also wants to use $4 million in lottery-backed bonds to help the U.S. Forest Service turn out more timber sales from federal lands in the dry forests east of the Cascades.

Natural Resources adviser Richard Whitman said the governor sees the two proposals as vital to maintaining the struggling timber industry in central and eastern Oregon, both as a source of jobs and as a necessary part of the infrastructure for logging that will improve forest health and reduce wildfire danger.

The region almost lost one of the half-dozen surviving mills last year, for lack of timber from national forests, Whitman said.

“If there is any further decline, it will be very hard to get back,” he said.

A wildfire policy watchdog group, however, sees the funding change as a “scam” on taxpayers that benefits the timber industry — but not the public.

Andy Stahl, director of Forest Service Employees for Environmental Ethics said any money spent on air tankers and helicopters is a waste, because there is no data to show that they are effective tools for keeping fires from getting out of control.

“At a time when we are struggling to fund schools and fund health care, why we would want to divert those dollars to some of Oregon’s largest corporations is a bit mystifying,” said Stahl. “Historic data shows no correlation between the amount of retardant dumped on a (forest) and the success rate of keeping fires small.”

The timber industry has been trying for years to change the wildfire funding formula, and last year the state Board of Forestry appointed a committee representing forest landowners, government agencies and the governor’s office, which came up with the Wildfire Protection Act.

Under the current funding formula, private landowners, whether large timber companies or homeowners with a few acres of trees, pay a tax to cover the costs of the Oregon Department of Forestry’s firefighting efforts. The tax ranges from 80 cents per acre on the wetter west side of the state, to $1.70 on the drier east side.

The first $10 million of the cost of fighting large fires is covered by private landowners. The next $15 million comes from the state general fund. After that, a special insurance policy kicks in $25 million up to a total of $50 million. In recent years, the cost of fighting large fires has averaged $8 million, so landowners have covered it alone.

The bill calls for sharing the costs evenly from the start, up to a total of $20 million. The amount the state pays would increase gradually over six years, so that at the end the cost would be split 50-50, up to $20 million. Despite the lower deductible, the cost of the insurance policy would remain at $1 million, due to increased firefighting resources, said Travis Medema, deputy chief of fire protection for the Oregon Department of Forestry.

The idea behind the state taking a greater share is that the public benefits from keeping forests green, so they provide recreation, fish and wildlife habitat, and clean water, said Whitman, of the Natural Resources Department.

As for the bottleneck in turning out more timber from national forests in eastern and central Oregon, Whitman said the problem has been a lack of funding for the Forest Service.

Sales developed collaboratively by groups that include representatives of the timber industry and conservation groups typically are not held up by court challenge. The $4 million would go to planning and laying out timber sales.

“We put money into economic development projects all the time,” Whitman said. “In terms of bang for the buck for job creation” and helping mills and logging outfits stay in business, “it looks like a pretty good investment.”

The state is still in negotiations with the Forest Service, but wants to receive payment from the sale of timber in return for the investment in preparing sales, Whitman said.

Stahl said a similar arrangement had been worked out in Arizona to promote thinning to reduce fire danger. He said it was ironic for the state to pay the federal government to log, when federal payments to timber counties to make up for reduced logging revenues have expired.

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