Jerry Howard in the house..

One of many highlights from an invigorating week on the road was the opportunity to listen to Jerry Howard, CEO of the National Association of Home Builders (NAHB). What a speaker. LMC Expo 11-12-14And with more than 25 years of lobbying and association experience in Washington DC, to suggest that Howard is ‘in the loop’ is to state the obvious. It’s evident the overriding concerns surrounding polarized political views continue to plague Congress. Some takeaways from Jerry Howard’s speech at the LMC Forest Products & Building Materials EXPO in Philadelphia November 11th:

  • Adaptation is what’s kept builders alive (remodeling, light commercial) – “those who survived the recession were the most adaptable”
  • NAHB had 250,000 members prior to recession; 130,000 today
  • Large, publicly-traded home builders only account for 25-30% of housing market activity – rest of the builders account for 70%
  • Those publicly-traded companies were most concentrated in the hottest markets –  the hardest hit markets in the recession
  • Since World War II, housing has led the economy into recession and housing has led the economy out of recession – but the financial sector collapse of 2008 was unprecedented
  • Policies of the Federal Government aimed at promoting home ownership are to blame for the collapse – “banks found creative ways to get people into housing” – underwriting mortgages = “good policy taken too far”
  • Now “unbelievably restrictive to get a mortgage”.. as result there are “no first-time home buyers in the market”
  • Inability of first-time buyers to get a mortgage is what’s impeding the market
  • Production will only come back when mortgage policy is loosened – Need to search for and find compromise in face of inability of representatives of government to solve differences on issues
  • Availability of credit also big challenge for builders
  • There is pent up housing demand historically that needs to be met – “1.4-1.6 million housing starts = organic demand” – owning a home “still part of the American dream”
  • Millennials want urban living but when they have a family they still want a single family house with a backyard in a good school district
  • Biggest thing home builders want from suppliers is consistency: consistency of product availability, quality, and price
  • “Recession took us for a loop” but “business people who survived the recession will have the wherewithal to see us through”
  • Emergence of “co-located” trade shows post-recession; NAHB International Builders Show and Kitchen & Bath Industry Show combine in January
  • Forecast for “1.2 to 1.4 million” U.S. housing starts in 2015 raised a few eyebrows!

Remember When

Back in 2011, the North American Wholesale Lumber Association (NAWLA) Regional Meeting in Vancouver featured three excellent speakers: Daryl Swetlishoff (Head of Research, Raymond James Ltd), Oscar Faoro (Special Projects, Canadian Wood Council), and Jim Jia (President, L J Resources Ltd). I recall catching up with Oscar following his informative presentation on multi-family, sustainable densification. He openly laughed at analyst projections that U.S. housing starts would return to 1.4 million by 2014. “It’s not going to happen like that!” asserted Oscar.
… Fast forward to today. Housing starts are at an annual pace of 976,000. The rate of multi-family starts grew by 21% in the first eight months of the year, while single-family starts grew just 2%.

Today’s MNI News Reality Check here is packed with surprisingly forthright quotes. It’s a good read. In the piece, Paul Jannke of Forest Economic Advisors, a bull in a Bruins jersey at NAWLA Vancouver 2012, now contends that demand for housing will not sustain an upturn in lumber prices. Says Jannke, “If you’re selling 400,000 (homes), why do you need to build 1.4 million? If you look at the actual demand for housing, it’s not as high as people think it is.”
… Could it be that housing starts data has taken on “a different meaning for the lumber industry”, as Shawn Church at Random Lengths suggested here, back in March?

“Lumber producers are making a lot of money producing lumber right now, and what do you do when you make a lot of money? You produce more lumber. It’s unlikely that we are going to see a significant increase in lumber prices.”
– Paul Jannke, Forest Economic Advisors (Sept. 2014)

Single Family Shortfall

While the good news in reported U.S. housing starts is an 8% increase year over year, clearly the annual pace of single-family construction is falling well short of early projections. As noted in a February post here, a forecast from the National Association of Homebuilders (NAHB) called for single-family production to reach 822,000 units this year – an increase of 32 per cent over last year. The August data released this morning indicates an annual pace of 643,000 – an increase of just 4 per cent. The data underscores ongoing uncertainties hanging over housing activity despite confirmation of continued low interest rates coming out of Fed reports this week.

Meanwhile, the NAHB confirms softwood lumber prices rose 2.4 per cent in August, but are down modestly from an earlier March peak. In the face of gradually increasing demand for building materials, the NAHB attributes price softness to “additional productive capacity being brought back to the wood products sector”. As one lumber trader was overheard to say, “Nothing solves high prices like high prices”.


Yesterday we learned that a local Vancouver couple is off to compete with the best magicians on the continent. Their original illusions are aimed at presenting creations that seem real. It’s no secret that statistics presenting data related to housing activity can be just as mystifying.

The Chief Economist Of Housing Research at Metrostudy has now suggested in this interview on Bloomberg Radio that the weak housing statistics of late do not corroborate with Metrostudy’s ‘on-the-ground’ findings. Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide; we’re told they survey single-family residential subdivisions and perfected the lot-by-lot survey methodology that sets the industry standard today (HT: Mark Kennedy, CIBC).

It’s been suggested that lumber traders in all regions share a common interest in welcoming a little magic to spur market interests this summer.

“The bigger-than-expected (GDP) gain further cemented views that the decrease in America’s overall output during the first quarter was most likely a fluke tied in large part to unusually stormy winter weather and other anomalies.”
US Economy Grew at 4% Rate in Second Quarter, Beating Expectations. New York Times.

“Home prices across the U.S. are poised for a fifth consecutive year of recovery. The market is still faced with low inventory and demand, buoyed by an expanding economy, which, among other factors, remains healthy. Both supply and demand conditions are moving from extreme bullish conditions to healthy conditions.”
Altos: Critics wrong about housing, it’s going to soar.

“Halfway Home”

A fresh chart from Trulia today illustrates how quickly the U.S. housing market is moving back to normal. It reveals improvement in all but one of the five market indicators since Q1. With regard to new construction, Trulia reports “starts are 50% back to normal, up from 45% one quarter ago and 41% one year ago. Multi-unit starts – mostly apartment buildings – are leading the recovery: in 2014 so far, multi-unit starts accounted for 35% of all new home starts, the highest annual level in 40 years. This apartment boom started last year, and last year’s starts are now being completed, which is increasing the supply of apartments for rent.”


“While the spring selling season was softer than anticipated by us and the investor community, the homebuilding recovery continued its progression at a slow and steady pace. The fundamentals of the homebuilding industry remain strong driven by high affordability levels, favorable monthly payment comparisons to rentals, and overall supply shortages. Demand in most of our markets continues to outpace supply, which is constrained by limited land availability.”
– Stuart Miller, CEO of Lennar Corporation, speaking today

“The steadiness is evidence..”

On the face of it, this morning’s U.S. housing starts and permits report appears disappointing. However, a more encouraging picture emerges from a nuanced National Association of Home Builders (NAHB) blog post here. The NAHB notes that the driver behind the declines was multifamily apartment construction (down 7.6%), while “steady” single-family data is indicative of a gradual recovery that’s on track: “Single-family permits were up 3.7% to 619,000 (seasonally-adjusted annual rate), the highest since November 2013 and roughly equivalent to the output for all of 2013.” The NAHB attributes a 5.9% decline in single-family starts to a combination of factors including:

  • cautious/conservative behaviour of homebuilders that persists after a six year decline in housing production
  • low supply of developed lots
  • labour/construction crew constraints
  • supply chain difficulties which have caused builders to postpone and lengthen construction schedules.

The NAHB report concludes: “The number of single-family homes under construction has remained relatively steady at 340,000 for the past six months and the number completed just above 600,000 for the same period. The steadiness is evidence of builders continued conservative approach to adding inventory and the builders’ read of the same conservative nature of potential home buyers. As the economy continues to expand, consumer confidence in housing will return and the housing market will continue its modest expansion.”

“All the elements – the key drivers – are coming together as forecast. The only thing that’s been harder to predict is the pace of the recovery. U.S. housing markets are improving – but painfully gradually.”
– Mark Kennedy, CIBC

Shifting Gears?

While lumber futures hit a 9-month low this morning, I read this brief post with interest at Wood Business. The author, analyst Russ Taylor, President of the International Wood Markets Group, acknowledges that “U.S. demand for lumber has not been growing as forecast.” He confirms that sluggish single-family construction is “the issue”. With the exception of November (710,000 units) and December (675,000 units) last year, Taylor notes new single-family housing has been “stuck” between 590,000-650,000 units since late 2012. He reports a range of 583,000-654,000 in the first four months of this year. “In contrast, for the 14-year period 1994-2007, U.S. single-family housing starts surpassed 1 million units each month.”

In Taylor’s view, “Without a significant pick-up, lumber markets could become oversupplied by the wave of new capacity additions and/or shifts now coming on-stream in North America.” Little over one year ago at the 2013 COFI Convention in Prince George, Taylor’s bullish forecast contained a caveat; he cautioned that the key to the “super cycle” thesis was “sustained demand”, while suggesting that in his opinion, supply side dynamics were “the only thing that’s not changing” in the short term.


(Rental) Housing Starts

In February, a bullish forecast from the National Association of Home Builders (NAHB) projected single-family production to increase 32% to 822,000 units this year (see post here). The April U.S. housing starts and permit data released today represents a pace of 649,000 units (a 5% increase over the 618,000 units built last year).

Much of today’s analysis points to significant variables beyond seasonal weather that are defining the reality of new home construction:

  • “What’s been notable since the housing crash is how much construction is aimed at meeting demand for rental housing,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “There’s been a trend away from homeownership that’s persisted even as the pace of foreclosures has slowed. What we can see is that higher home prices, particularly for new homes, have weighed on demand.” Source
  • “Starts for the volatile multi-family homes segment surged 39.6 percent in April. Permits for single-family homes, however, rose just 0.3 percent and continue to lag groundbreaking, suggesting single-family starts could decline in the months ahead.. questions remain over how lasting the current strength will prove, and the report on consumer confidence offered a cautionary note.” Source
  • “For anyone tempted by these shiny headline numbers to conclude all the recent worry about the state of the housing market was much ado about nothing, we suggest you curb your enthusiasm, at least for now,” wrote Richard Moody, chief economist at Regions Financial Corp, in a note to clients. The report, he wrote, “shows more of the same – a vibrant multifamily segment with a single-family segment still awaiting takeoff.” Source
  • “Single-family is still concerning, but multi-family is going full throttle,” said Moody, who had forecast 1 million housing starts. “We’re seeing job growth pick up, income growth pick up, and now there’s talk of loosening up credit for home purchases,” and those “should contribute to a pick-up in single family activity.” Source
  • “The current stock of apartments is insufficient to satisfy demand, sending rents soaring across the country and making multi-family units an attractive investment for developers and landlords,” said Stephanie Karol, an economist at IHS Global Insight in Lexington, Massachusetts. Source
  •  “The rental market continues to be strong due to the foreclosure crisis and the lack of economic mobility.. the housing recovery is happening, however meekly.” Source

A Bellwether Report?

The story of winter’s hangover impact on U.S. construction-related activity is reflected in disappointing second quarter sales at Beacon Roofing Supply. Could the roofer’s report be a bellwether indicator of results in wider building related activity this year?

“The Northeast and Midwest were well off last year’s sales numbers and had a combined sales miss nearly equal to the entire company miss year over year,” president and CEO Paul Isabella said during a May 9 earnings call with analysts. “This kind of sales miss has a major impact on competitive pricing and cost leveraging in those markets.”

From a gross margin perspective, the Northern and Midwest regions made up nearly 60% of Beacon’s overall gross margin miss for the quarter compared to the year-ago period. The Mid-Atlantic region had a 15% miss compared to prior year. The combined impact of the three regions contributed to the company’s total gross margin miss year over year.

However, there were some bright spots in the quarter. Gross margins were up 12% year to year in the Pacific region, 9% in the Southeast, and 4% in the Southwest.

“While weather can impact the timing of work being done, we believe it does not impact the overall demand over the course of the year,” Isabella said. “In general, the work still needs to be done and based on the severity of this winter, we feel it will translate into additional work besides the pent up demand. As a result, we believe the demand for both residential and commercial work will be strong for the remainder of the year.”

– from Severe Winter Chills Beacon Roofing Supply’s 2Q Sales, posted today at Pro Sales Magazine

Random Short Lengths

A few blogger’s notes that one day could grow up to be posts of their own:

  • In midst of all the puzzling U.S. housing reports of late, could the housing starts data for April surprise? Some market watchers hint that starts and permits could exceed forecasts when the report is released May 16th. Signs of renewed activity would lend strength to forest analyst expectations for lumber prices to gradually creep higher through the second half of the year.
  • The International Wood Markets Group hosted their 4th Annual Softwood Log & Lumber Conference in Vancouver yesterday. Among the many intriguing presenters, Mans Johannson, Vice CEO of the VIDA Group, the largest private sawmilling group in Sweden, addressed market trends and outlooks from a European perspective. A particular slide he shared reportedly captured the attention of almost 300 in attendance. The chart precisely indicated lumber prices around the world required to trigger shipments from Europe into select markets. Of note, Northeast U.S. market pricing presently ranks near the bottom of the list.
  • “There is no wood fibre shortage globally,” confirms Mark Kennedy, Executive Director at CIBC Forest Products Equity Research, in town for the conference. In talking with Mark last evening, he suggested of greater significance is what price levels are required to attract global supply. Perhaps that helps explain the origin of the lumber trader’s adage “nothing solves high prices like high prices.”