Economist sees light at the end of the tunnel, but no good news for B.C.
Gordon Hamilton
Sun
A U.S. economist said Monday the U.S. housing bust may be “closer to the end than the beginning.”
Forest economist Henry Spelter reported in a research bulletin that nationwide home valuations have sunk to the point that houses are almost affordable again for buyers, signalling that the bottom may be approaching in the current housing cycle.
Spelter, an economist with the U.S. Forest Service’s Forest Products Laboratory, said the relationship between income and housing prices is only one metric in determining how far along the downward curve housing has fallen, but that it is a significant sign.
“Restoring the normal relationship of price to income is necessary but not sufficient to revive real estate,” he said. “Credit still needs to flow freely again, incomes need to keep pace and general economic conditions need to stabilize but … we appear to be much closer to the end than the beginning.”
But for the B.C. lumber industry, having the bottom in sight doesn’t mean a turnaround is on the way.
Keta Kosman, publisher of Madison‘s Lumber Reporter, said she expects the U.S. housing industry to bounce along the bottom for several years and when it does recover, there are no guarantees.
“The old B.C. business model of pumping out two-by-fours to the U.S. market is essentially over,” she said. “There’s not really going to be any turnaround in the traditional sense for us.”
Spelter drew his conclusions by analysing the relationship between new house prices and incomes. He used the period from 1983 to 2001 as his base.
By 2006, average new home prices had risen to $313,000 US, 32 per cent above the 1983-2001 base of $257,000 US. But by September, prices were down to $275,000 US, only seven per cent above parity.
Median U.S. housing prices were at $218,000 US in September, less than two per cent from the 1983-2001 base of $214,000 US, Spelter said.
“On a national level, we are closing in fast on sustainable and reasonable home valuations,” he said.
Lumber prices have not responded to signs of a bottom forming in U.S. housing. Spelter’s preliminary estimates show that B.C. Interior sawmill margins are down 14 per cent for the month of October despite the drop in the Canadian dollar. Lumber prices have fallen almost as fast as the dollar, he said. All but $5 US of a currency gain of $35 US per thousand board feet of lumber shipped has been erased by lumber’s drop, he said.
Dimension lumber is currently selling for $189 US, down from $226 a year ago.
© The Vancouver Sun 2008
