Housing’s Business Model

My blogpost in early 2013 pointed to a news story about Blackstone, the largest private real estate owner in the United States. It was reported that in 2012 the company had begun spending $100 million a week buying houses. By 2013, those purchases had accelerated to acquire more than $2.5 billion in rental properties. See: Accelerated Purchases and related post All in.. On the U.S. Housing Recovery.

It’s interesting to learn this week Blackstone have in total amassed about 50,000 rental houses in the past four years. Housing as a commodity. But having first developed and adapted strategies as a buyer/landlord, the company is now adapting to changed market circumstances to become a seller. We’re told the company is beginning to sell “properties that have soared in value or no longer fit their business models”. Under a program called “Resident First Look”, renters get first look, enabling Blackstone “to benefit from having its own pool of ready buyers who are constrained by a market starved for affordable homes”.

On a related note, it’s revealing to see this list of price-to-rent ratios for American cities. According to Investopedia, a price-to-rent ratio of 1 to 15 indicates it’s much better to buy than rent, 16-20 suggests it’s typically better to rent than buy, and 21 or more means it’s much better to rent than buy. For example, with ratios below the 19.2 national average, a number of Texas markets are presently very favorable to homebuyers.

Observers of the bewildering real estate picture, in especially hotspots like Toronto and Vancouver (where the price-to-rent ratio is 55 in the east of the city and 72 on the westside), might be wondering how these patterns of housing dynamics could play out down the road in Canada.

Happy Birthday

So what’s to celebrate this week? Harderblog is five years old! What’s changed in five years? Media tell us the world has changed. The lumber business continues to change. Markets change. We’re learning that climate changes.

One of many significant changes captured in the blog archives is the bottoming/gradual recovery of the U.S. housing market. In February 2011, the seasonally-adjusted annual rate of housing starts in the United States was just 518,000 and the Random Lengths Framing Lumber Composite Price averaged $296. Today, starts have doubled while the Composite Price is barely 8% higher at $320. As one American dealer recently noted during our conversation re. lumber prices, “What is this, the 1950’s?!” If a new Softwood Lumber Agreement is negotiated before October, is it any wonder it will be a more restrictive deal than the last one and it won’t be good news for Canada?

Christmas 2015-001

Dec 25, 2015

Probably some of the most prominent changes I’ve experienced involve the fact that suddenly not only do I have the daily pleasure of fulfilling lumber requirements of valued customers, but also, I’m into negotiating the daily whims of an active six year-old daughter – with a four-year-old encore commanding equal time most days. On some days no doubt the opportunities awaiting attention at the office seem like welcome respite.. until I’m back home at night, where a small daughter’s smile wins me over.. and over.. reaffirming reality that fives years has gone by in a flash!


Push and Pull

Amid the uncertainty of all that’s shaping lumber markets these days, today recall Forest Economic Advisors (FEA) analyst Paul Jannke’s presentation at the LMC Expo in Philadelphia back in November. Toward the end of his decidedly bearish forecast for 2016, Jannke described home sales data as the key stat to watch when gauging future homebuilding activity. Today, we learned U.S. single-family home sales surged almost 11% in December. According to CNBC, it’s “the latest indication that the housing sector remains on firmer footing despite a massive stock market sell-off and slowing economic growth.”

Grass Huts for Homeless?

A story in this morning’s Maui News reports that Hawaiian lawmakers are considering a unique solution to the housing crisis there. A bill will be introduced in upcoming legislative session that would set aside land to build thatched homes aimed at alleviating homelessness. Senator Chun Oakland said “There is an interest in capturing some of the traditional ways of living among our people here in Hawaii.”

“This doesn’t make any sense,” said Shannon Wood, co-founder of the Windward Ahupuaa Alliance, a non-profit organization that advocates for smart growth solutions. “This is 2016, not 1616.” Wood asked whether there would be toilets in the huts.  Senator Oakland said that all details have not been worked out.
HT: Ernie Harder

Oil and Housing

On December 30, 2014 we asked Will $55 oil help or hinder housing starts next year? The answer may not be entirely clear on this as year-end activity in the U.S. in particular finds lumber market activity brisk with upbeat November housing reports. Builders are reportedly stepping up home construction broadly across the U.S., suggesting the housing market will help anchor the economy amid global turbulence and projected four more interest rate hikes next year. So far the winter weather that has known to shut down building, in the lead-up to Christmas in past seasons, has not played a large part. Builders broke ground on 1.173 million units, when calculated at a yearly rate, in November, up 10.5% from a month earlier, the Commerce Department said Wednesday. Construction climbed at roughly the same pace in the first 11 months of the year compared with the same period in 2014.   

Getting Started on Housing Starts

Since when does data on building chicken barns legitimately become part of housing starts analysis? In today’s Lumber Market Report, Random Lengths drew attention to what seemed like an unusual point in noting that “4×6-12’s on the westside got a boost from strong sales to builders of chicken houses”. Perhaps it doesn’t matter. Certainly the roosters don’t care. So why should we?

There’s interesting stuff happening in housing construction in many areas that makes one wonder about the collection of data on starts. For one, does size matter? As part of Vancouver’s Eco Density Initiative, Laneway Infill Housing aims to increase density without disrupting neighborhood building patterns. No doubt the building materials used in construction of one of Vancouver’s many new monster homes is equivalent to five or six laneway houses or two dozen chicken houses. This morning The Vancouver Sun reports Hummingbird Micro Homes selling up to 31 housing starts at 300 square feet per home. Are these houses included?

The multi-family trends in ‘housing construction’ south of the border no doubt influence degree to which particular starts impact use of lumber, as traders warily scrutinize activity for June. Meanwhile, a recent string of local articles bemoan the sluggish lumber recovery in B.C. It has some wondering if it’s time industry focused a little less on what we can’t control (housing starts) and a little more on what we can (lumber production).


False Creek Sawmills

False Creek looking east from Granville Bridge 1928

False Creek – 1928

Mills and Log Booms on False Creek 1936


In A Short History of False Creek, Sam Sullivan writes: “The first Granville Bridge was built in 1889 connecting the south and north shores and industry, mills and manufacturing began to encircle the Creek. The CPR installed massive rail yards centred around the now refurbished Roundhouse, and to
the north residents began to settle close to the yards where they worked. These men used to work on the CPR in the Fraser Canyon town of Yale and when they relocated to False Creek, the neighbourhood of ‘Yaletown’ was born. By 1891, six of Vancouver’s eight saw mills were on False Creek.”

Living in Yaletown today, it’s hard to believe False Creek was once an industrial waterway lined with as many as 17 sawmills. When Vancouver’s first five-alarm fire destroyed the B.C. Forest Products plant and lumber storage facility on the south shore of False Creek in 1960, it marked the end of an era. Reportedly 200 million board feet of lumber (equivalent today to an 8-hour shift at West Fraser 🙂 ) was destroyed in the fire. A “False Creek Sawmill” search at The City of Vancouver Archives website this week produced over 89,000 results. The old images posted here are but a sample, interspersed with some pictures from a recent stroll.

~Green Shoots~

The Wall Street Journal reports “investors in the lumber market are the latest to be whipsawed by the struggle between two forces acting around the globe: stubbornly sluggish economic growth and expansive central-bank stimulus aimed at jump-starting business activity.” Five bullish takeaways from the article that suggest Lumber’s Set to Build on Its Rally:

  1. The 20.2% jump in new-home construction in April is the biggest monthly gain in percentage terms since February 1991
  2. Lumber futures have rebounded 15% since falling to a three-year low last week
  3. Many countries are cutting interest rates/buying bonds to ease financial conditions and support growth
  4. China has reduced rates three times in the last six months – Chinese demand likely to pick up in the coming months as lower borrowing costs revive home construction
  5. Building permits in the U.S. held steady even when housing starts were weak earlier this year (“all the projects delayed over winter will get done, in addition to everything else that’s scheduled”).

More Signs of Spring

It’s generally recognized that distributors have a knack for adapting to unfolding market condition demands. The Framing Lumber Composite Price has fallen $50 this quarter. It’s rumoured that some have adapted to conditions by starting happy hour at noon. I heard someone suggest that the B.C. Wholesale Lumber Association may even consider early voting for next year’s Lumberman of the Beer.

Traders hold their collective breath over yet-to-be-determined/undetermined mill “policy” in view of April’s five per cent export charge. Even so, encouraging signs are beginning to emerge. Sales of newly built single-family homes last month in the U.S. reportedly reached their highest level in seven years. A bullish post today at HousingWire.com suggests new home construction is poised to pick up steam. As Mark Kennedy at CIBC reminded me this morning, “patience grasshopper”.

On the heels of blooming cherry blossoms in these parts comes news of Toronto Garden Club ladies exhibiting bikinis made from flowers and foliage. Surely signs that spring is in the air.

Super Week

In a week leading up to Super Bowl we’re still absorbing implications of variable air being let out of things on both sides of the border. On the Canadian side, weaker oil prompted economic measures aimed at pumping a deflating economy. On the U.S. side, any oxygen in the President’s State of the Union address seemed upstaged by headlines of deflated footballs. The annual NHL All-Star break this weekend garnered little attention with no claims of deflated equipment despite goalie Roberto Luongo’s preference for a softer puck.

Closer to home, B.C. Wholesale Lumber Association President Chris Sainas is pumped to confirm leading real estate marketer Bob “Condo King” Rennie will be the keynote speaker at tomorrow’s BCWLA Smoker in Vancouver. Speaking of sales, it’s reported majority of lumber analysts project benchmark SPF lumber prices to average between $370/M and $375/M this year (up from $350/M average in 2014). With the benchmark SPF price presently at $312/M, permabull Daryl Swetlishoff explains here: “At the core of our forecast is our assumption of total U.S. housing starts, which Raymond James expects to increase 10 per cent to 1.09 million units in 2015. We note this forecast remains conservative relative to consensus at 1.18 million units.”

Maui Rainbow 1-25-14

On the road to Kula, Maui – photo credit: ejh (01-25-15)

Q & A – the 2014 Edition

Of the Top Ten Questions for 2014 posed at Harderblog one year ago, some may have been satisfactorily answered for us; others, not so much.

1) Is there a real shortage of fibre supply looming?
B.C.’s Chief Forester Dave Peterson recently confirmed there will be less timber. “There’s no doubt we’re coming closer and closer to the point where the cuts will be reduced,” said Dave. Cuts are predicated by area, region, species, site conditions, and is specific to sawmills.. seemingly making any generalization regarding a fibre shortage not applicable. West Fraser CEO Ted Seraphim has publicly stated “The industry is smaller today and it’s going to be smaller tomorrow in British Columbia.”

2) Is B.C. doing enough to restore/replant forest that was degraded/destroyed by the Mountain Pine Beetle?
Earlier this week we turned to John Betts, Executive Director of the Western Silvicultural Contractors’ Association. “One of the best answers to that question comes from an internal Wildfire Management Branch discussion paper released recently describing the consequences of climate change and the current state of our forests,” says John. “We can expect widespread wildfires causing environmental losses and huge costs to government and the B.C. economy. Runaway wildfire years will not only upset provincial finances but cause major setbacks to landscape in terms of bio-diversity, abundance and services that influence the quality of air and water and life in general. The remedy to these consequences lies in restoring the landscape. But those mitigative restoration and reforestation strategies are not widespread in proportion to the scale of the threat. Nor are they consistently or adequately funded. I think we could do more to restore/replant forests. In fact we probably will have to in the future.”

3) Is the northern pipeline a relevant issue of interest to forestry in this province?
The real impact is still unknown. It would seem since many aspects of the northern pipeline are still up for negotiation, involving Federal politics,  First Nations negotiations.. many questions still unanswered.

4) Will Canadian Softwood lumber shipments to the United States be ‘duty-free’ for all twelve months in 2014?
Yes. In fact January 2015 will mark the 15th consecutive month that the “Prevailing Monthly Price” has remained above the $355/M tax trigger. The current 2006 Softwood Lumber Agreement expires October 12, 2015.

5) Is there a housing bubble developing in Canada?
CBC reports here “Both federal Finance Minister Joe Oliver and the governor of the Bank of Canada, Stephen Poloz, have acknowledged potential dangers. Poloz worried publicly last week that house prices could be overvalued. But when questioned in New York he said a 30% overvaluation was not a bubble.” While the normalization of interest rates is expected to have an impact, some still anticipate a ‘soft landing’. Meanwhile, vested interests peddle their skewed opinions to suit their own point of view.

6) Will U.S. housing starts reach 1.25 million in 2014?
No. November housing starts data indicates an annualized pace of 1.028 million for 2014. The monthly average through November is 991,000 (CIBC). Year-over-year, single family starts are up 4.4% and multifamily starts are up 16.6%  Severe winter weather saw housing starts down YOY in Q1 – but starts picked up in the 2nd half.

7) What does the emerging Super Cycle mean to lumber distributors in North America?
‘Super Cycle’ may still hold relevance in some pedalling circles, but as far as being part of B.C.’s forestry lexicon, it appears to have faded like lofty oil.

8) Who benefits from lumber and log exports to China?
The largest producers seem to be benefiting most from export growth. North American producers gain price leverage in offshore markets, enhancing the bottom line.

9) Is the gap likely to narrow between Luongo’s income in 2014 and the average lumber trader’s income?
No. Luongo is still being paid big bucks to play in front of Florida Panthers home crowds equivalent in numbers to most medium-sized office wholesale staff.

10)  Will West Fraser and Canfor ship enough wood to China in 2014 to renovate the Great Wall?
Through October, B.C. exports of softwood lumber to China were down 2.6% year-over-year (CIBC). In the month of October, B.C. exports to China were down 17% YOY (CIBC). As any homeowner knows, maintenance tends to be an ongoing process. And so it is with that big fence in China. In the face of China’s fibre deficit, the need for wood from “The Billion Board Foot Club” will be ongoing.

What do you think? Where do you agree/disagree? I welcome your input..