The home construction market is about to enter a comeback that will see a near-doubling of housing starts over the next 20 months, leading in turn to a spur in lumber dealers' need to stock up on softwood, a leading economist for the lumber industry forecast today.
Paul Jannke, senior vice president for wood products and timber at RISI, an information provider and forecaster for the forest products industry, told members of the Northeastern Lumber Manufacturers Association (NELMA) that dealers' lumber inventories, when measured against the consumption rate for wood, are shrinking from about a two-month supply in 2008 to roughly a two-week supply by mid-2009.
At the same time, he said, housing starts are likely to go from about 590,000 this year to 1.09 million in 2010. That's an optimistic number compared with other economists, but Jannke maintained his forecast was more likely to err on the high side than the low. "I think you're going to see a quick bounceback," he told NELMA members meeting in Boston.
Jannke said the current market for North American softwood lumber is the worst it has been in decades, but he said the first three months of 2009 probably will go down as the roughest quarter of the year. He based that prediction on several factors: home prices are down, interest rates will continue to stay low, the affordability of housing is rising, the credit market freeze is thawing and, above all, the federal government's economic stimulus spending is under way.
"We're closer to the end of this [housing downturn] than we are to the beginning," he said. "... There's so much money being pumped into the economy, things are going to improve."
The current tepid economy is going to make things look better even if it doesn't improve much, he noted. Because it takes about seven months for a home to be built, the current supply of housing now coming onto the market was begun at a time when the housing starts rate was closer to 800,000. Homes completed at the current starts rate of under 500,000 won't come on the market until September. By that time, Jannke expects Americans will be building homes at about the same rate as they are being sold, thus continuing to reduce the glut of unsold properties. By December, the current backlog of homes should drop from a 13-month to about a six-month supply, he predicted.
Jannke estimated the United States will consume about 37 billion board feet of softwood lumber in 2009 and 43.5 billion board feet of lumber in 2010. Capacity will decline this year about 6% to 7%, he added. Jannke also believes wholesale prices will remain weak, but won't go much lower.