Hello,  Thanks for this article. Unfortunately, you have used a number of inaccurate figures and faulty analysis and therefore, your article fails to tell the whole story and basically gives readers a more rosy view of the situation than is warranted based on an honest and accurate reading of the facts.Below I will post some information from the WWPA that was delivered to the Oregon Forest Industries Council. I have bolded a number of the most important points.

Your article gives the impression that WWPA’s prediction of “668,000 new housing projects” is an annual total. It is not, that’s a monthly total. Fact is, housing starts are not predicted to reach 1 million units, single and multi-family per month until 2012. Well, sure that can look like an “increase” or a “rebound” but the fact is that in 2005 national housing starts were 2 million per month. So, even this big rebound being predicted in 2012 (if it even comes true) will result in still 50% less housing starts per month…or approximately 12 million less housing starts per year. You think we just might need less lumber given these facts? Of course.

I just fail to see why some people can’t be more honest about these figures. Why should we gloss over the reality of the situation facing our country and our economy? Who does that serve really? Fact is, our country has over-consumped and over-built and now we’re dealing with the real-world consequences of those irresponsible and short sighted actions. Thanks, Matthew Koehler

Timber forecast: We’re in a Wood Products Depression, Rebound likely years away
Western Wood Products Association Economic Forecast
Delivered October 12, 2009, to Oregon Forest Industries Council
By Rick Sohn, Umpqua Coquille LLC

At the 2009 annual meeting of Oregon’s industrial forest landowners, the Oregon Forest Industry Council, Mr. Butch Bernhardt, Director of Information Services from Western Wood Products Association, spoke about the downturn in the wood products sector and the WWPA prognostication for recovery.  Here are some highlights from his discussion, supplemented by additional data provided by Mr. David Jackson, Director of Economic Services for WWPA.  To put our current downturn into perspective, note the drop in wood consumption in the United States in the 3 most recent downturns.

Based on a total 2005 consumption of 64.335 billion board feet, the total 2005-2009 drop was well over 50%!!  As Mr. Bernhardt put it, this IS our great depression in the wood products industry. The driver is home building and remodeling, as home building consumes 45% of wood products, while repair and remodeling consume 35% of wood consumption.  Together they account for a total of 75% of total wood consumption.

With housing starts currently less than 30% of the 2-plus million starts per month in 2005, it is not difficult to see why wood consumption is down.

Butch Bernhardt presented statistics on housing starts that went back all the way to World War II, rather than stopping in 1959 as with US Census Bureau statistics.  The last time housing starts were as low as the current period was 1942-1945.  In 1945, housing starts were 326,000.  Yet, by 1946, there were 1 million starts.  Nonetheless, housing starts did not get to 1.9 million until 1950.

Is a rebound similar to 1946 possible, sometime in the near future?  Not likely.  Why not?  Back in 1945, there was NOT an inventory of unsold homes equivalent to 7.6 months supply, as there is today.  Furthermore, we can expect the total foreclosures for 2009 to top 1 million, pushing the pre-occupied home supply out even further.

On the brighter side, Mr. Bernhardt reported that adjustable rate mortgages (translated subprime mortgages) totaled 35% of mortgages at its peak in 2005, while the number has dropped currently to about 10%, and new home sales have increased slightly since the first of the year.

Now that we know we are in a wood products depression that will be slow to mend, what does the future look like to the Western Wood Products Association?

Total housing starts, the sum of single and multi-family units, is predicted by WWPA as follows.

There are no typos here.  The housing starts are not predicted to reach 1 million units, single and multi-family, until 2012!!!!!  If that is true, there will have been 44 months below 1 million starts, by January, 2012.

Note: I kept on running up against the word limit, so this is the last part of the article immediately above (sorry about that):

Are we likely to get to 1 million starts sooner than early 2012?  As Mr. Barnhardt indicated, with a typical homebuyer needing 25% cash and pristine credit to buy a home today, don’t bet on it.  We are in for at least a couple more years of very tough sledding.

When we see the recovery of homebuilding to 1 million units, what will the employment picture look like at that time?  Without robust employment figures, it is generally accepted that we will not see a strong recovery.  Furthermore, 1 million starts is far below the 2 million starts of 2005, another indication that a recovering economy is not necessarily a strong economy.  According to the Bureau of Labor Statistics, the seasonally adjusted 50-state unemployment rate is still climbing and reached 9.8% in September.

Finally, in previous reports, we asked the question of when would we hit bottom or when would the recovery begin.  In this report, we look into slightly later stages of the recovery.  What is unpredictable this go-around, is the length of time between the beginning of the wood products recovery and the top of the market - or even the middle - of this depression-sized market cycle.

Thanks to Mr. Butch Bernhardt and Mr. David Jackson of Western Wood Products Association, for the data used in this report.

The WWPA forecast is too pessimistic. The industry has been dramatically underbuilding relative to underlying demand for three years.  The dynamics of the downturn have shifted from one of too many homes to too few households.  HHs have collapsed as the unemployment rate has surged (is that why Junior is back in hte basement?)

The leading indicators for unemployment are trending in the right direction.  Initial claims for unemployment insurance are falling, temporary employment is rising, now hours worked appear to have turned the corner.  Unemployment will start declining within a quarter or two and household formation will rise quickly soon after.  Barring a double-dip recession, we will see 1M starts by early 2011. 


BTW, RISI’s whole Wood and Timber economic analysis team quit in August and started their own shop called Forest Economic Advisors - www.getFEA.com.  If I were a RISI client, I wouldn’t think of renewing until I talked to these guys.