Changes in Traditional Forest Product Marketstimbermeasure.com/Reno/henry_spelter.pdf ·...
Transcript of Changes in Traditional Forest Product Marketstimbermeasure.com/Reno/henry_spelter.pdf ·...
Changes in Traditional Forest Product Markets
Peter J. Ince & Henry SpelterUS Forest Products LaboratoryMadison, Wisconsin
2008 Timber Measurements Society Meeting
Traditional Forest Product Markets:Traditional Forest Product Markets:
•• Lumber & Wood PanelsLumber & Wood Panels(OSB logs, Chip(OSB logs, Chip--nn--saw, Saw Logs, Veneer Logs)saw, Saw Logs, Veneer Logs)
•• Paper, Paperboard & Wood Pulp Paper, Paperboard & Wood Pulp (Pulp logs, Wood Chips)(Pulp logs, Wood Chips)
Wood panel & lumber usage is tied to housing construction, so their markets are impacted by changes in housing demand . . .
Since 2005, the big change in lumber and wood panel demand was an end to the housing boom with a collapse in U.S. housing construction . . .
Sources: Data - U.S. Census Bureau 2008 Forecast – H Spelter
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2000
2001
2002
2003
2004
2005
2006
2007
2008 (F)
2009 (F)
Mill
ions
per
yea
r
Single-family housing unit constructionstarts/year
Strong global forces were behind the recent boom and bust in U.S. housing demand.
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50
100
150
200
250
300
350
1980
1984
1988
1992
1996
2000
2004
2008 (e)
Bill
ions
of D
olla
rsForeign Purchases of U.S. Agency Bonds
Source: U.S. Dept. of the Treasury
As the U.S. trade deficit expanded, foreigners invested billions of dollars each year into U.S. mortgage markets (e.g. buying U.S. “agency bonds” –GNMA, FNMA, FHLMC bonds that fund mortgage markets; also CDOs).This credit boom facilitated a housing boom in recent years. However, loose credit also spawned bad debt, home foreclosures, and a credit crunch.
Foreign Central Banks Began to Dump Agency Bonds in Favor of U.S. Treasuries
800
1000
1200
1400
1600
1/2/2008 3/2/2008 5/2/2008 7/2/2008 9/2/2008
Bill
ion
$
Treasuries
Agencies
GSEsNationalized
All deposits guaranteed
Median New Home Price (Census; Single-Family)
100
125
150
175
200
225
250
275
19951996199719981999200020012002200320042005200620072008
Thou
sand
s of
Dol
lars
Booming credit, low interest rates, and high LTV (loan-to-value) mortgages facilitated booming home prices, but U.S. average wage gains did not keep up with new home prices, so home affordabilitybecame an issue, especially after interest rates bottomed out in ‘05.
U.S. Average Wage of Production Workers (BLS)
10
12.5
15
17.5
20
22.5
25
27.5
19951996199719981999200020012002200320042005200620072008
Dol
lars
per
Hou
r
Up 82%
Up 50%
To maintain affordability, income needs to keep pace with home prices or else home price appreciation is not sustainable (unless interest rates keep declining) . . .
80
100
120
140
160
180
200
220
240
260
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
New home price index
Existing home price index
Median family income
Median Income and Home PricesIndexed to value of 100 in 1990:
Sustainable relationship
Sources: NAHB & NAR – Home prices; Census – Median Income
Really not sustainableafter mortgage rates bottomed out in ‘05
-10
-5
0
5
10
15
1990199119921993199419951996199719981999200020012002200320042005200620072008Pe
rcen
t Cha
nge
(Yr.
/Yr.
)Annual Change in Existing Home Sales PriceAnnual Change in Existing Home Sales Price
Source: Wannasiri Chompoopet, NAR Research
So, appreciation in existing home prices plunged in 2006, and in 2007 actually declined for the first time on record. With this abrupt changein home equity appreciation much of the economic incentive to build new housing suddenly evaporated.
PolynomialTrendline
$Without the lure of home value appreciation (equity gains) new home sales collapsed in 2006-2008. The housing boom ended, and home foreclosures rose as equity declined.
The credit boom drove home prices, but wages did not keep pace.
0.50
0.70
0.90
1.10
1.30
1.50
1.70
1.90
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Hou
sing
sta
rts (m
illio
ns, a
nnua
l rat
e)
.U.S. single-family (1-unit) housing starts, SAAR
After 2005, the credit-driven home building boom became a bust, as appreciation in home values declined. Taking on big debts to build a new home without assured appreciation in equity became a risk too big for many to take.
Sources: U.S. Census Bureau, Seasonally Adjusted Annual Rate (SAAR), by month
- - - - - - - - - - Credit Boom Era - - - - - - - - - - - - - - - - - - Housing
Collapse
- - - - - - -
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0.2
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0.8
1
1.2
1.4
19631965196719691971197319751977197919811983198519871989199119931995199719992001200320052007
Mill
ions
(ann
ual r
ate)
Source: Lawrence Yun, NAR Research; NAHB data (new single-family home sales)
“Baby Boom” Era (70s & 80s) Credit Boom
Era
Housing
CollapsePolynomial
Trendline
Key points about new home sales history:• Latest boom/bust is the biggest on record• The recent boom was driven by a credit boom• It was distinct from “baby boom” era (’70s-’80s)
• Past notable declines featured rising interest rates and risingunemployment (current interest rates are near all-time lows)
• The current collapse features declining home value appreciation
Monthly New Home Sales - Long History
What experts have said about how long the nation’s housing doldrums will continue:
“ . . . for a long time” (CNN, March 11, 2008)
Edward Leamer, Professor, UCLAAuthor of “Housing Is the Business Cycle”
“. . . the housing correction, what's going on in the housing market, this is not over, it's going to take longer”
Hank Paulson, U.S. Treasury Secretary(YouTube, February 12, 2008)
What experts have said about how long the nation’s housing doldrums will continue:
“ . . . Broader economic recovery will not happen right away. The housing market continues to be a primary source of weakness…” (Speech to the Economic Club of New York, Oct 15, 2008)
Ben Bernanke, Chairman of the Federal Reserve.
Ratios of Home Prices to Median Incomes
0
0.5
1
1.5
2
2.5
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
DCPhoenix
Percentage Changes Needed to Align Home Price and Median Incomes
-40%
-30%
-20%
-10%
0%
10%
20%N
ew Y
ork
LA
Mia
mi
San
Die
go
San
Fran
Seat
tle
Phoe
nix
DC
Bos
ton
Tam
pa
Chi
cago
Las
Vega
s
Min
n
US
Cha
rlotte
Den
ver
Atla
nta
Det
roit
Cle
vela
nd
OSB $/MSF
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
Softwood Lumber (#2 & Btr.) $/Mbf
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
Sources: CIBC World Markets Equity Research, Random Lengths
Market PricesThe collapse of the housing boom since 2005 heralded major changes for traditional U.S. forest product markets,as illustrated here by change in product prices.
?
?
[>50% Price Drop]
[>30% Price Drop]
Any expectation of recovery hinges upon uncertain recovery (?)in housing demand.
U.S. Log Price Trends (2001 – 2008) . . .
Sources: BLS Producer Price Indexes for Logs & Bolts (Series WPU085101 and WPU085102)
Log prices followed lumber and panel prices, pushing to recent peak levels in 2004-2005, and falling to lower levels with the collapse of housing construction activity in 2006-2007. However, log prices have not dropped as much as lumber prices – some suggest this may be a supply effect of declining forest industry timberland ownership.
240
200
AnotherAnotherGlobalGlobal
Change . . .Change . . .
$$ (lower value U.S. dollar)(lower value U.S. dollar)
In addition to the credit boom and weak housing In addition to the credit boom and weak housing market, wood market, wood importsimports are beginning to change are beginning to change also in response to another important economic also in response to another important economic factor, the lower exchange value of U.S. dollar.factor, the lower exchange value of U.S. dollar.
0%
20%
40%
60%
80%
100%
Paper &Board
OSB &Plywood
SoftwoodLumber
HHFurniture
HardwoodLumber
Hardwodflooring
Hwd &softwd
molding
1990 2005
Sources: Shipments : Dept Commerce, Bureau Census , ASM; Imports & Exports : FAS; Paper & Board: AF&PA
Declines in domestically-produced shares of U.S. consumption:From 1990 to 2005, U.S. producers lost market share to imports in all wood products, especially labor-intensive products like plywood, furniture, and millwork. The dollar was strong for much of that period.
-$18
-$16
-$14
-$12
-$10
-$8
-$6
-$4
-$2
$0 1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
U.S. Forest Products Trade Imbalance: The U.S. forest products trade balance deteriorated with rising imports since the early 90s, but improved in the past several years, with a weak U.S. dollar (and weak housing) . . .
Billion $
Source: FAOSTAT – includes Round wood, wood based panels, pulp, paper & paperboard (from Al Schuler, USFS)
2006Imports $31.5 billionExports 18.5 billionDeficit $13.0 billion
Billion Square Feet (3/8”)
Source: APA, The Engineered Wood Association
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2
4
6
8
10
12
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Canada Other
OSB Imports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007E
Canada Brazil Chile China Other
Softwood Plywood Imports
Plywood and OSB imports have started to taper off . . . (probably due to weak housing and maybe the weak dollar)
Summary points about change in lumber and wood panel markets
1. U.S. lumber and wood panel demands follow housing construction for obvious reasons (homes and furnishings are made of wood).
2. The U.S. housing market has experienced a collapse in demand, following the recent credit boom and peaking of home prices.
3. Since 2005 the collapse in housing has changed the market situation with lower demand and prices for lumber and wood panel products.
4. An upturn in U.S. markets for lumber and wood panels hinges upon an upturn in the housing market, the timing of which remains uncertain.
5. Although U.S. demands were crippled by the housing collapse, theweaker U.S. dollar has helped improve our wood trade balance.
The End