Lumber, log and housing markets

Lumber and log prices in Washington
Lumber prices (blue line) bottomed at $159/mbf in February and March of 2009 but then rose to $313/mbf in April 2010, $304/mbf in January 2011 and eased to $268/mbf in January 2012. Composite log prices (green line) have shown less volatility, as they usually do, rising from a low of $291/mbf in April and May of 2009 to a high of $501/mbf in April 2011. The January price for logs is at $464/mbf — just a $1 above the October 2011 price.

Here is the outlook for log, lumber and housing prices from the February 2012 DNR Economic and Revenue Forecast – a quarterly publication.

Figure 2.8 shows monthly real seasonally adjusted prices. Both lumber and log prices have significantly improved from their extreme lows in 2009. The lumber price bottomed at $159/mbf in February and March of 2009 but then rose to $313/mbf in April 2010 and $304/mbf in January 2011 (see Figure 2.8). In January 2012, the lumber price stood at $268/mbf. Composite log prices have shown less volatility, as they usually do, rising from a low of $291/mbf in April and May of 2009 to a high of $501/mbf in April 2011. The January price for logs was $464/mbf — just a $1 above the October 2011 price.

The last several years have been especially difficult for lumber mills: log prices have rebounded due to the influence of exports to China yet lumber prices remain low. Because log prices have been high relative to lumber prices, many Pacific Northwest mills have curtailed operations or closed altogether. Recent victims of economic conditions include two Snohomish County lumber mills that announced closures in 2012: Snohomish-Seattle Mill Company in Snohomish, which had operated since 1941 and recently employed 50 workers, and Northwest Hardwoods in Arlington, which had operated since 1967, and recently employed 60 workers.

Housing market

New home sales continue to be at historically low levels and 2011 was the lowest year on record with only 303,000 new homes sold (76,000 quarterly rate). This compares with the long-term (1963-2010) “normal” annual rate of 680,000 per year (170,000 quarterly rate). Housing experts think that new home sales probably bottomed out in mid-2010, but they have flat-lined since then. New home sales and new home construction move together so even with the low level of new home sales, the dramatic drop in new house construction has brought the inventory of newly built homes down to its lowest level in 10 years. The months’ worth of inventory of new homes for sale (at current sales rates) has worked its way down to 6.1 months in December from a monthly high of 12.2 months in January 2009.

New home completions and sales won’t increase significantly until the excess supply of existing homes, including those in the foreclosure pipeline, is absorbed. The months’ worth of existing home sales in the national inventory at current sales levels reached 6.9 months in the fourth quarter of 2011, down from the high point of 11.3 months reached in mid-2010. In more normal times the inventory of existing homes is in between four and five months.
Reducing the inventory (supply) of homes is a necessary part of restoring the U.S. housing market because it will contribute sooner or later to the demand for more new houses to be built.