October 24, 2007 - In inflation adjusted numbers, prices for many wood products today are the lowest ever. As would be expected, lay-offs and mill closures are on the rise.
As is frequently the case and as it was in both the lumber price crashes of 1981, 1991, the collapse of the housing market leads the way for a crash in lumber prices. Starts today are 30% lower when compared with a year ago. The housing market crash of ’81 and ’91 bottomed out with about a 43% drop in starts from the peak to the trough. This is about what the percentage drop from 2005 average high to September 07 has already recorded. Many analyses’s think the market is not yet at the bottom.
Keeping some mills alive is the continued growth in the size of the average new home, well over 2,200 sq ft, the increase in the re-modeling market, and perhaps most importantly, sawmill efficiency. Overrun numbers have increased by more than 60% since the early 80’s. This makes the recent decrease in capital investment in this industry even more troubling.
The weakening US dollar may offer some help as wood products from Canada and Chile will increase in costs at a greater rate than US products.
