Selective Cuttings

U.S. housing starts finally climb out of “worst ever” territory

January 4, 2013

The recovery of the housing sector in the US has been the talk of the solid wood products industry – even finding its way into the mainstream media — ever since its crash signalled the start of the economic crisis. The recent improvements have been greeted with much enthusiasm.

US single-family housing starts and Random Length composite lumber prices from January 1980 to November 2012

The line charts shows that since 1980, single family housing starts crashed three times, the worst crashed occurring in 1982. Single-family housing starts are only now inching above the 1982 levels from the 2009 crash. While lumber prices tumbled each time housing starts crashed, the 2008 event was less so and showed a faster recovery rate than housing starts.

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The crash saw single-family housing starts fall far below their lowest point since modern statistics on the industry began to be collected following the Second World War. It is worthwhile noting that, despite the spate of stories proclaiming “Good News in U.S. Housing!”, the current rate of U.S. housing starts has only now crept higher than the second lowest point ever, in 1981. So the good news amounts to the fact that the US housing market is now, officially, after 3 years, no longer the worst ever.

In the early 1980′s, and then in 1991 after another housing crash, the rate of US housing starts was considered disastrous. So why are the markets now greeting that same rate with some level of enthusiasm? In part, it is because of the direction of demand — housing starts are predicted to climb steadily over the next 3-5 years. However, even more to the point is the price of lumber. At around US$350/mbf the current prices are much higher than in previous slumps, and softwood lumber producers are able to turn a profit even if their housing construction partners are still struggling with very low volumes.

So, while not being ”the worst ever” is hardly cause for celebration, being able to turn a profit and foresee even more profits in the near term certainly is.