Forecasts, Forecasts

Lumber prices climbed 37% this year and lumber futures reached a seven-year high earlier this month. So where to from here? The New Year is set to accommodate a diversity of market predictions and forecasts. A variance of opinion is emerging, including this contrarian view at Bloomberg which offsets many of the bullish headlines of late.

When demand for lumber increases, prices move up. When production ramps up, the supply/demand balance swings the other way and prices come off. Nothing magical in that. However, there are more markets in play now than ever before. Offshore markets make the equation more complex. Evidence points to a U.S. housing market in recovery mode. The implication of available fibre supply is a question that will not be immediately answered.  Some sources indicate that if the ratio of salvaged MPB kill (dry) timber to green in the Interior was roughly 70/30 this year, 60/40 is estimated for 2013.

Whether bullish or bearish, all the market forecasts would suggest that good risk management guidelines will need to be followed in 2013. Happy New Year!

Superstorm Sell-off?

The New York Times reports “the real estate market along the New York and New Jersey coastlines has been as upended by Hurricane Sandy as the houses tossed from their foundations. In places where waterfront views once commanded substantial premiums, housing prices have tumbled amid uncertainty about the costs of rebuilding and the dangers of seaside living.”
The article tells us here that many locations, considered prime just two months ago, are now crawling with real estate “prospectors” (evidently detecting opportunities a lot bigger than lost jewelry at the beach). The prospectors began arriving almost immediately after the storm, “patrolling the waterlogged neighborhoods” with offers to buy distressed homes for cash. Many homeowners “who lack the means or the desire to rebuild say they have no choice but to try to get out from under these properties for whatever they can. Because many banks have been unwilling to provide mortgages to people seeking to buy in an area at risk for another catastrophe, or even to refinance properties so homeowners can pay for their own repairs, a cut-price cash sale is sometimes the only option.”

Ryan Case, a partner at Seaside Funding, a national “flip company” that often offers 60 percent to 70 percent below market rate for properties, acknowledged that would-be sellers would be wise to ignore his agents’ offers. “We are not your best option,” he said. Yet those who find bargain-basement offers tough to swallow – compared with the value their houses had before the storm – sometimes find themselves with little alternative. Mr. Case recounted how one New Jersey woman reacted with outrage at his company’s offer. “She said, ‘I’ll burn the house before I sell it to you guys to make a profit,’ ” he said. But she called back a week later to see if the offer still stood.


What are we to make of it?  At about the same time as forecasts for lumber demand next year are showing signs of optimism, the Mayans tell us the world is ending tomorrow.  For NHL hockey players it seems to have ended a few months ago. For cliff-watchers there are barely a few days left.  For Christmas shoppers, it’s coming down to the wire. In many parts of the continent it’s time to pull out some of the alleged 97 Inuit words for snow. In these parts the snow tires should have been installed before yesterday. Meanwhile lumber futures are not betting on it all ending tomorrow.  Neither are we.  Even so, for at least one lumber trader the matter of clearing up any unresolved matters  before the world ends took a serious turn when he found it wasn’t so easy leaving China until a lumber claim was settled. So, we’re not saying au revoir today, …  just  a toute a l’heure.. 

All is calm?

The first snowfall of winter arrived in Vancouver this morning, about the same time as news reports signal a “general chill-out” on many investment fronts. We’re told here that improved housing and signals of “China on the mend” are among indicators that could be blurring realities of greater risks lurking on the horizon. “Myles Zyblock, chief institutional strategist at RBC Capital Markets worries that markets aren’t sufficiently taking into account the risk of an economic-policy debacle.” Strong words. He describes one market volatility index as “a coiled spring” that could be disguising market dangers. For today though, the snowfall here is adding calm to the local landscape – unless you happen to be out driving in it.

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Christmas Letters – 2nd Edition

A surprisingly popular post this time last year featured a little sampling of the Christmas letters my dad wrote to customers and suppliers of Col-Pac Lumber Company from 1972 to 2003. In the earliest years, I remember the Christmas letters were always printed on the company’s crisp Kermit-green letterhead – often in the form of a poem offering up reflections on the year ending. While the so-called lumber market “pause” referred to in last year’s post has been less evident this December in midst of unseasonably active trading, today does mark the week before Christmas – which seemed a good time to pull a few more letters from the archives, available at the links below.

Lumber n things -1976

Seasonal Memories – 1994

A Christmas Sermon on the Woods – 1997

Week Before Christmas – 2000

Sinker Logs

A loyal reader submitted the image below, snapped this morning.. showing logs that normally support reclining sunbathers along flooded Spanish Banks floating away following heavy weekend rains and winds here in Vancouver. With B.C.’s shrinking timber supply in mind, entrepreneurial types may be asking themselves: at what point do these floating logs become fair game for mobile sawmillers? A comprehensive list of log salvage regulations suggests a career in beachcombing might begin with a good lawyer.

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Spanish Banks, Vancouver 12-17


Kits Pool, Vancouver 12-17

Kits Pool, Vancouver 12-17

Yin-Yang of it..

Until I engaged in the Mandarin Beginner (Level 1) course at UBC following a trip to Beijing in 2004, I might not have understood that Yin-Yang is much more than just a pair of opposites dependent on each other (not to be ascribed inaccurately to the interconnectedness of mill/wholesale/retail distribution channel connections). The discussion is more broadly concerned with communication. As global markets for B.C. lumber expand, there’s recognition of the value and need to enhance awareness of and sensitivity to accompanying global cultural and language diversities. Recent growth in business with China has brought to the fore an acknowledgement that Mandarin is the language of rapidly growing markets in Vancouver and overseas and those who can communicate will profit.

From my early introduction to Mandarin class, it all sounded simple enough: “You will learn phonetics and study the tonal system of Mandarin. You will also learn to share information about yourself, discuss your family, and ask basic questions of those around you, allowing you to function in everyday settings.”
So I read with interest a story in BC Business about Canfor CEO Don Kayne’s ongoing efforts to master The Language of Business with help from a private tutor. The article confirmed my discovery: “Mandarin is a notoriously difficult language to learn. The grammar is alien, meaning shifts with subtle tonality and reading a newspaper requires recognizing thousands of characters. Only a very small percentage of ‘non-heritage’ Chinese speakers will ever attain fluency.”

I recall my Mandarin teacher telling us of a “very famous” Canadian known as Dashan (“Big Mountain”) – a legend in China for his having mastered Mandarin as a second language. Turns out Dashan (Mark Henry Rowswell) has transcended the role of celebrity to become a cultural ambassador between China and the West. He was named Canada’s Goodwill Ambassador to China earlier this year.

Where are they now?

Remember the countless warnings and dire predictions about the so-called “shadow inventory” of foreclosed homes in the U.S. that was going to flood the market and stall the recovery? We were told as recently as the NAWLA meeting in Vancouver last April that a bottleneck of foreclosures would soon suffocate a housing market showing signs of life.
“It never happened – even after the five biggest U.S. mortgage servicers reached a $25 billion settlement with federal and state regulators in February. Instead, the number of residential properties for sale in the U.S. shrank to the lowest level in a decade, while prices have appreciated at the fastest pace since 2005.”

In The Foreclosure Wave That Wasn’t, Bloomberg cites several reasons why so many analysts got it wrong:

  • Federal government loan modification programs and negotiated bank deals yielded over $15 billion in “principal forgiveness” and writedowns for homeowners
  • Record low interest rates triggered a spike in mortgage refinancings, which lowered monthly payments for homeowners
  • Institutional investors purchased thousands of foreclosed homes in bulk before they even hit the market, then rented them out instead of reselling.

Daren Blomquist, vice president of RealtyTrac, which warned a year ago that huge numbers of foreclosed homes were going to hit the market, also explains that “In hindsight, by delaying and prolonging the foreclosure process, that gave the market time to stabilize and get back on its feet. Maybe bureaucracy is actually helping, in this case, to diffuse the impact of the foreclosures. Talk about unintended consequences.”

Still, the article ends on a cautionary note, with a reminder that almost a quarter of all U.S. homeowners with a mortgage still owe more than their homes are worth, making them candidates for future defaults. Adds Robert Shiller: “It’s funny how people have so much confidence in the recovery. History shows that these markets are hard to predict.”

To frame or finance..

An interesting report from Bloomberg this morning explains how for some U.S. homebuilders, financing is generating bigger bucks than framing at the moment. Turns out a Federal Reserve stimulus program intended to lower borrowing costs for homebuyers has had a mostly unintended impact – in the form of big profits for lenders. (Full Story)

“At PulteGroup Inc., the second-largest builder by market value, mortgage revenue jumped 70 percent in the third quarter, almost six times the revenue gain from home sales. At Lennar Corp., the No. 1 builder, mortgage-unit revenue surged 60 percent, double the increase in sales revenue. Aided by lucrative lending units, both companies posted the biggest overall profits since 2006. ‘The homebuilders are little players in the lending world, but they’re benefiting from the wide margins of the big players,’ said Michael Widner, an analyst at Stifel Nicolaus & Co. in Baltimore.”

“At this point in the cycle, when homebuilders are just starting to get profitable again, it’s not bad to be making money off mortgages – it’s just a little bit of a risk because there are a lot of factors beyond the control of builders that could influence that,” said Megan McGrath, MKM Partners.