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Housing, lumber slump will go till 2010

The historic downturn in lumber demand will likely extend another year until the country’s financial system and housing market can be repaired, according to a new lumber supply-and-demand forecast from Western Wood Products Association.

“There’s just so much uncertainty out there as to what’s going to happen,” says Butch Bernhardt, Jr., WWPA spokesman. “A lot of these things are outside of the control of mills and builders and the like, and it’s clear that just for this economy to return [to normal], home building is going to have to be a big part of that.”

According to the lumber trade association, lumber demand is expected to drop 15 percent to 44.3 billion bf this year and then fall another 3 percent to 43 billion bf in 2009. In just three years, demand for lumber has plummeted by some 20 billion bf — more than what Western mills produced in all of 2005.

WWPA represents softwood lumber manufacturers in 12 Western states and Alaska. The association’s forecast estimates housing starts will reach 993,000 in 2008 and decline further to 933,000 next year. The decline of more than 50 percent in housing starts from 2005 has been a huge blow to lumber mills. The volume of lumber used in new home construction is expected to total 11.8 billion bf in 2008 — less than half of the 23.3 billion bf used just two years earlier.

“We’re hopeful that this year we’ll see the bottom, [but it will] probably go way into next year as well,” says Bernhardt. “As we look further out, we do believe in the next several years that housing demand will pick back up. Just looking at the demographics, we’re going to need more houses. The big question right now is with all these foreclosures, there’s not a whole lot of incentive to build a house when you can go buy a foreclosed house that’s dropped by $50,000 because of the conditions.”

Production in the West should total almost 14 billion bf this year, slipping to 13.6 billion bf in 2009. That would be the lowest annual volume since 1982. Since 2005, output at Western mills has declined 28 percent, or more than 5 billion bf.

“Here in the West, 80 percent of the lumber we use is structural lumber. It’s used to build structures in mostly houses. Our fortunes are definitely tied to the home-building industry, and, until that returns to health, it’s going to be a tough road to sled for our mills.”

The WWPA forecast calls for housing markets and lumber demand to grow in 2010, but cautions that any recovery will be slow.

“We’ve never seen a drop like this. This is the steepest drop both by a percentage basis and a volume basis ever for consumption. Even in the ’80s, when there was a depression in this industry. This is worse.

“We’ve lost a few mills, but mostly what we’ve seen is curtailments. We’ve seen mills go down, take time off, close down temporarily. We haven’t seen any major mills or companies close the doors for good — not yet. Certainly, this isn’t over yet. It’s going to be a cold winter.”

Contact: Western Wood Products Association, 522 S.W. Fifth Ave. Suite 500, Portland, OR 97204-2122. Tel: 503-224-3930.

This article originally appeared in the January 2009 issue.

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