While China is on pace to import record volumes of logs and lumber this year, it’s no secret that demand offshore has moderated in recent months. Last November, David Elstone, forest industry analyst at ERA Forest Products Research, stated that “If the Chinese were to stop buying today, the North American market would be in massive disarray.” CIBC Analyst Mark Kennedy meanwhile considers new housing activity in the U.S. to be “the key variable” today in gauging future demand for lumber. “The biggest demand variable continues to be US housing starts,” confirms Mark.

We now turn to the clashing housing headlines below. Is it any wonder why both procurement and risk teeter in the minds of anyone buying wood products today?

Homebuilders Offer Freebies as Booming U.S. Markets Cool
– Bloomberg (7 Oct 14)

• In January, the federal government, which is reducing its share of the mortgage market to lure back private capital, cut Federal Housing Administration (FHA) loan sizes in 652 high-cost U.S. counties.
• Buyers, suffering from sticker shock after large price gains in 2013, are pulling back..
• Builders are competing with a growing supply of previously owned homes as investors withdraw from the market. Orlando’s inventory of listings jumped 81 percent in August from a year earlier. In Phoenix, the supply increased 26 percent. The median price for an existing home in Phoenix is $189,900, a discount of more than $100,000 compared with a new home.

Goldman: The Housing Recovery Resumes
– Calculated Risk (7 Oct 14)

• Real residential investment grew at an 8.8% rate in Q2 and is tracking at nearly 15% in Q3.
• We continue to see substantial upside for the housing sector in the long run. This view is driven by the large gap between the current annual run rate of housing starts, which have averaged about 1 million over the last three months, and our housing analysts’ projection of a long-run equilibrium demand for new homes of about 1.5-1.6 million per year, estimated as the sum of trend household formation and demolition of existing homes.
• Two factors are essential for the outlook: housing affordability and mortgage credit availability.

“One of the things they do not talk about, particularly the publicly traded companies, is a shortage of skilled labor. Now here, where we have a hot real estate market, you literally see armed guards posted around construction projects to keep people from poaching the labor force. It is astonishing. But there is a shortage of skilled labor. Mexicans build homes in America. I don’t care if it is Bangor, Maine, or Portland, Oregon, or Dallas, Texas.That is immigration policy. I defy you to find a homebuilder that says mortgage rates are really the issue.”
– Richard Fisher, President of the Federal Reserve Bank of Dallas (Sept. 2014)