Timberland Update- April 2011- Housing Market Recovery and Timber Prices

The timberland investment community is watching the economy and the recovery closely.  The close ties between new housing starts and the demand for pine sawtimber are obvious.  The experts in the field of timberland investment and forecasting had some interesting information regarding the current state of the economic recovery as well as forecasting future growth rates.  The recovery has been slow and there is no denying that fact.  Experts agree that the future looks promising, which is encouraging.  The forecast from Forisk show that the US South will see higher stumpage prices.  Both the Forisk data and the data from Harvard University’s Joint Center for Housing Studies show healthy growth for the housing market which has a direct impact on the timber market.  “Increasing demand for wood raw materials indicates higher pine stumpage prices for forest owners and investors.  Forisk Consulting forecasts sawtimber prices for the US South strengthening 4.6% into 2012 and 5.5% into 2013 as lumber production increases with housing starts. Alternately, pine pulpwood – the lower valued raw material used for pulp, OSB and bioenergy –gains 1.4% and 2.7% into 2012 and 2013 South-wide, with high variance across the 11 states covered in Forisk’s models.” (Mendell, http://landthink.com, March 10, 2011) 

Dr. Kermit Baker of Harvard University’s Joint Center for Housing Studies described the long term outlook as favorable.  Dr. Baker states that the recovery has been very disappointing.  He describes the “triple whammy: inventory overhang, weak demand, and low mobility” for homeowners and home buyers.  Housing market fundamentals will slowly return to the long term growth trends.  The housing market is currently overwhelmed by the “shadow inventory” of unsold homes.  This shadow inventory is a result of years of overbuilding which has generated significant oversupply of vacant homes.  Dr. Baker does support data that shows after a disappointing 2010, housing is projected to recover very gradually over the next few years.  Harvard University’s Joint Center for Housing Studies says that new home demand should top 16 million in 2010-2020, even under low immigration assumptions.  The market for residential remodeling has been more stable.  The remodeling downturn began well after homebuilding and has seen healthy growth recently.    The leading indicator of remodeling activity points to early stages of recovery and the growth rates look healthy for the next five years.