housing, the economy, and wood products markets - - today ... · housing, the economy, and wood...
TRANSCRIPT
Housing, the Economy, and Wood Products Markets - - today and
thoughts about tomorrow
Al Schuler ( [email protected]) USDA Forest Service
AFOA Session January 21, 2009.
Housing Issues
Today’s Economic Crisis – A Chronology
1. Housing Collapse – easy credit, unrealistic expectations,weak regulation, greed, exotic financial instruments –CDO’s, SIV’s. As house prices reached unsustainable levels and mortgage rates increased, foreclosures increased and house prices tumbled. The financial people realized the assets( i.e., the houses) were overvalued, and the mortgage backed securitiesdecreased in value – many became worthless. Banks lost moneyand the credit crunch began as banks began a “deleveraging” process– and stopped lending. House prices collapsed further as mortgages reset, forcing even more foreclosures, and more pain for banks.
2. The financial crisis that stated with the mortgage market, spreadto commercial real estate and credit cards as the entire financial systemwas freezing up.
3. This caused job losses in construction, and other industries, especially onesthat rely on credit for business – autos and other big ticket items, etc.
4. Job losses escalate - - enter the recession.
Solution - - Stabilize housing markets by addressing foreclosure problem
Home prices and incomes must trend together- when price exceeds ability to pay ( incomes)
house prices must come down
100
120
140
160
180
200
220
240
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
2008(th Sept)New home price Existing home price Median Family Incomes
Income and Price set to Index of 100 in 1990
Sustainable relationship
correction
Sources: NAHB & NAR – Home prices; U.S. Census – family income
Case Shiller National Home Price Index*some analysts suggest prices need to fall another 15%to bring prices and incomes back to historical norms
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2000
2003
2006
Qtr, % change, Year over Year
* Existing homes
Qtr 3 08
Price Rise Not realistic
Source: MBA, Dennis Couchon, USA Today, Dec 12 2008
Housing InventoryStill too large
0500
100015002000250030003500400045005000
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Existing New
Thousand Units, Single Family
Annual – 1990 - 2007
2008 – monthly
Adjustable and fixed Rate Mortgage Resets - -To date, most of the problems came from subprime mortgages,however, over the next 4 years, there are toxic mortgage resetsthat exceed the subprime problem by 50% or $500 billion
Subprime, Alt A, and Option Adjustable Arm Mortgages
• Subprime – loans to people with poor credit scores – FICO score less than 620. These are the mortgages that caused the initial housing crisis!
• Alt A – loans given to people with good credit scores, but you don’t have to submit all of the documentation required for a straight loani.e.;, don’t have to show or prove their income or ability to pay for the loan
• Option adjustable rate mortgage – adjustable rate mortgages with flexible payment options – two onerous options are interest only payment, and “minimum payment amount ( doesn’t even include full amount of interest due). Problem occurs when this mortgage resets
• Size comparison: (1) subprime $1 trillion ; (2) Alt A $1 trillion(3) Option adjustable ARMS $600 billion
• Problem – Alt A and Option ARMs will reset between 2009 – 2012Default rates are high, so we could see a continuation of the housing crisis for another 4 years UNLESS we solve the Foreclosure problems
Single Family Housing starts
0200400600800
100012001400160018002000
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
Thousand units
Source: U.S. Census
Down 76% from 2005 peak to today
Forecast of Experts2009 Housing Starts ( thousands)
741247494Average
662186476HIS global Insight
731286445NAR
820285535MBA
694193501NAHB
798285513Fannie Mae
TotalMultifamilySingle Family
Forecast dates: latest availableJan 13 – 2009.
NAHB’s Latest Forecast
19492073
1812
1341
924694
909
0
500
1000
1500
2000
2500
2004 2005 2006 2007 2008F 2009F 2010F
Thousand starts
Source: NAHB, November 24, 2008
67% drop from 2005 peak to 2009 bottomModest recovery starting 2nd half 09?
Long Term Housing Demand DriversLonger term outlook is solid based on demographics
( household formations plus net immigration)
-0.5
0
0.5
1
1.5
2
2.5
Boom : 76-85
Bust: 91-2000
2008-2012
2013-2017
Demographics Vacancy demand Net Removals
Million per year
Source: NAHB, June 2008
Vacancy demand – 2nd homes, spec homesRemovals – net loss from existing inventoryof housing stock
Remodeling Market - -Pulling back in response to poor economy
Long Term - New Construction vs RemodelingRemodeling becoming increasingly important & is
the key market for wood products
191220
280
338
402
230
300
424 418453
$100
$200
$300
$400
$500
1995 2000 2005 2010 2015
Remodeling New constrcution
45%
42%
40%
45%
47%
36%
38%
40%
42%
44%
46%
48%
1995 2000 2005 2010 2015
Billions 2005 dollars
Source: Harvard JCHS 2007
Remodeling share of residential investment
The Economy
Net change in Non Farm payrolls
-700-600-500-400-300-200
-1000
100200300
"Jan 07"
"Jan 08"
2.58 million net job loss in 2008 1.5 million in Qtr 4 alone
Source: U.S. BLS ( www.bls.gov )
( thousand )
Consumer ConfidenceKey to future consumption, investment and lending
0
20
40
60
80
100
120
JAN 06 A
PR J
UL O
CT J
AN 07 A
PR J
UL O
CT J
AN 08 A
PR J
UL O
CT
Source: Conference Board (http://www.conference-board.org/economics/ConsumerConfidence.cfm
Index : 1985 = 100
Dec 08 = 38Lowest on record
Wood Product Markets
Softwood Markets
2007 U.S. Softwood Lumber
55 BBF (144 million Cubic Meters)
Industrial25%
New Residential*36%
R&A34%
NR4%
2007 U.S. Structural Panels35.2 BSF(3/8) (36 million Cubic Meters)
New Residential*45%
Industrial23%
R&A24%
NR.5%
*New Residential incl. SF, MF, and Mobile Homes
Source: RISI, 2008
Export 1.5%Export 1.7%
0
0.5
1
1.5
2
2.5
2002 2003 2004 2005 2006 2007 2008$200
$300
$400
$500
$600
$700
Starts Lumber ( FLC) Panels ( SPC)
Starts ( Million units) Price, $/M
Lumber and Panel Prices Follow Housingand, … stumpage prices track lumber prices
• U.S. Consumption (BBF): 2005 2006 2007 2008 2009(E)*64 60 52 41 35
• Western Production (BBF): 19.4 18 16.3 13.4 11.8
• Southern Production : 19.0 18.6 16.7 13.9 12
• PRICESSPC down $288/M from April 2004 ( Peak) – today 52% dropFLC down $234/M from Aug 2004 (Peak) - today – 49% drop
• Stumpage & Del’vd Log Prices & SYP Sawtimber: 2004 - 2008Stumpage down 48% constant dollarsDelivered logs prices down 30% constant dollars
Softwood Lumber Stats
2009 estimates from WWPA, Jan 2009(http://www2.wwpa.org/ABOUTWWPA/Newsroom/tabid/817/Default.aspx
WV Hardwood Stumpage Prices
$150$200$250$300$350$400$450$500$550
2003
2004
2005
2006
2007
2008
Red Oak Hard Maple Walnut
Source: WVU AHC
Qtr, $/M, International
Housing impact
Export impact
Yes - Hardwood Lumber Prices tied to Housing!
$0
$400
$800
$1,200
$1,600
$2,000
"Dec04"
"Dec05"
"Dec06"
"Dec07"
"Nov08"
Hard Maple, 1C,KD 1&2 white,$/M, Appalachian Region
Source: HMR
Housing and Hardwood Product Markets– - strong linkages
Source: HMR Executive, December 2008
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
GDP
Housing startsCabinet salesW
ood furn shptsFlooring shptLum
ber exp (vol)Crosstie (inv)Sawm
ill prod