Monday, November 13, 2006

'Housing Decline Was More Abrupt...Than Expected'

From the Sacramento Business Journal:

Housing decline hits sawmills hard
Small operations pushed out by larger companies as demand for lumber falls

Sawmills are cutting back production, or even closing their doors, as slower home construction nationwide drags down the demand for lumber. The price of framing lumber dropped to $278 per thousand board feet in October, the lowest price since early 2001, from a peak of $473 in August of 2004, according to Random Lengths, a trade publication based in Eugene, Ore.

Lower prices are forcing sawmills to retrench. Last week, Random Lengths on its Web site reported 20 production cuts at Pacific Northwest sawmills since Sept. 1. In Tacoma, Wash., Pony Lumber Co. has shut down its sawmill while Longview Fibre Co. recently announced that it will close its sawmill in Leavenworth, Wash., by the end of the year.

"Discounting inflation, you'd have to go back to the recession of '81 and '82 to find sustained low prices comparable to what they are today," said Walt Wirfs, Pony Lumber president and chief executive officer.
Even the big companies are feeling the pain, with Weyerhaeuser Co. on Oct. 25 reporting a 26 percent drop in net earnings in the third quarter, to $211 million, largely because of lower lumber demand due to fewer housing starts.

"While anticipated, the housing market decline was more abrupt and drove wood products prices and demand into a deeper plunge than expected," said Weyerhaeuser president and CEO Steven Rogel, in the earnings statement.


SCProfessor said...

I love the spin Nassi gives to the court appointment of a receiver (an extraordinary remedy that would not have been accomplished if he was doing his job and Merrill Lynch Capital's loan wasn't in default. Nassi "says he's always been a minor partner in Palladio and downplays the management change... The "stellar" project is nearly complete, he says. Merrill merely "wanted its own people in to give guidance" once costs surpassed estimates.

Now the likely truth is Nassi ran out of money and turned to Merrill Lynch to provide additional funding. Merrill determined that he wasn't doing his job as the loan went into default and sought the Court appointment of a receiver to get the project completed. See for a report on the situation.

dr joyce brothers in law said...

Nassi = Raul Castro in a few months when "The Beard"
finally dies.

Anonymous said...

The price for logs sure has not risen much at all during the housing boom. Sierra pacific industries bascially has a monopoly on the timber market in california so they set the price. So many mills closed down there really is no competition if you sell your timber. The sawill of spi in lincoln is really the only local mill around anymore.

happyinSF said...

Haha, Wow, the argument for high home prices due to the fact that you just can't build a 200k house anymore with the prices on materials, is now going out the window. Guess nobody thought that the price of materials and land would go down with demand..duh.

jr said...

Lander, take a look at this:

The Sac Bus Journal says the Building Association reports new home sales rebounded sharply in Oct 06 over Oct 05. It says this study tracks 176 developments in 20 counties in Northern California. 471 sales, vs 372 last year (vs 600 in 2004). So basically, every subdivision sold an average of 2.6 homes last month. (I wonder how many subdivisions there were in 2004 & 2005.)

The information they leave out is the prices. I am willing to bet the prices have dropped 20%, with another 5% given away in incentives.

What does all this mean? Is it just a dead cat bounce? (Taken from the old saying, "even a dead cat bounces when you throw it off a 10-story building).

Well, I have not seen any MLS stats for October, but my guess is the homebuilders are soaking up all the potential buyers and the resale market is going to take an even bigger hit.

Hmmmm. Everyone is waiting to see what happens in the spring of 2007. The last thing a buyer should do now is buy a home. Prices are not going up for many years, and if sales don't rebound in the spring, prices will drop some more. My forecast is another 10%.....or a $40,000 savings on a $400,000 home by next fall.

Curioser and curioser....

JR said...

This just in from the

Dataquick reports from California. “Last month was the slowest October for Southern California home sales in a decade."

So there you have it. The builders had a 21% jump in sales for Oct 2006 over Oct 2005 (but 22% below Oct 2004) and it all came out of the hides of the re-sale market. The Flippers are paying a big price, holding on to all those vacant, for sale homes at a cost of $5,000/month. Do they think the homebuilders are going to run out of inventory? Get real....they are still building homes by the dozens and their costs are plummeting by the day. Lumber is down, sheetrock is down, labor is down. The homebuilders are nailing the Flippers to the wall. How ironic, since the Flippers were their best customers a year ago....providing quick sales, no haggling, just get the order an d get out. It is sort of like the builders are eating their own young. But what do you expect from pit bulls......who need to keep their jobs going and their stock floating?