MaFket Outlook

Looking for the Iight at the end of the tunnel

r|'IHIS year is expected to mark the I- low point of the long and protracted recession that began with the housing downtum and was officially recognized as a recession in December 2OO7 , according to APA's annual spring forecast.

That expectation comes with some cautions and caveats, however, notes APA market research director Craig Adair. "Our forecast assumes that at least some of the many programs thrown at the economy and the housing market by the federal government will stick and get the economy moving again," he said.

The key factors required for a turnaround are affordable homes, a recovered credit system, renewed consumer confidence, and at least moderate job growth, the forecast notes. The first three of those four criteria have shown some promising signs recently. Home prices in most parts of the U.S. have come down to pre-boom levels. Once buyers believe the bottom has been reached, the huge inventory of unsold housing should begin to recede. The Treasury Department's recent banking "stress test," although showing billions of dollars in anticipated losses through the end of the year, at least provided a measure of the problem, a critical first step in repairing the system. And consumer confidence has been on the rise for the last three months, signaling new hope for an increase in consumer spending.

The unemployment rate, at approximately 9Vo. remains the most trou-

Get monthly housing, production reports

Subscriptions to APA's monthly housing market and quarterly engineered wood production reporls are now available.

The housing markel report is in the form ol a PowerPoint presentation and includes housing starts and permit data, new and existing home sales, home inventories and months of supply, mortgage rate trends, and a housing starts forecast. Also included are data on nonresidential construction spending, industrial production and remodeling, consumer prices and spending, and U.S. and Canadian gross domestic product. Based on data compiled through a comprehensive review of industry and government reports, the report is emailed to subscribers, The annual subscription is $600.

The quarterly industry production reports, published about two weeks after the end of each quarter and encompassing both the U.S. and Canada, cover softwood plywood, OSB, glulam timber, wood l-joists, and LVL. The reports provide data on U.S. panel production by region as well as panel import and export data and mill closures and openings for all engineered wood prod- uct categories. Annual subscriptions to the quarterly production reporl are $250. The report is delivered by email as a PDF file. bling of the challenges still ahead.

APA also issues an annual Structural Panels & Engineered Wood Yearbook that provides a wealth of historical demand and production data, including U.S. and Canadian softwood plywood and OSB production and capacity, U.S. regional production, panel imports by country of origin, panel exports by destinalion, U.S. and Canadian production of glulam, wood ljoists and LVL, product consumption by end-use markets, panel and EWP producing mills in North America, producers ranked by size, panel production by state, mill starts and closures, and much more.

The reference tool includes data up through 2008, with estimates for 2009. In some cases, the historical data go back as far as 1990.

Prepared by APA's Craig Adair, the yearbook (APA Economics Report E175) is $250 as a PDF only. To view the table of contents or to order online, go to the Publications section of www.apawood.org.

Taking all those factors into account, APA's spring forecast is for U.S. GDP to return to growth by the fourth quarter and for the seasonally adjusted annual rate of U.S. housing starts to begin a long slow rise during the second halfofthis year.

U.S. housing starts, including manufactured units, are expected to total just 540,000 this year, down 45Vo from 2008 and a staggeringT5To from the 2.2 million at the peak of the housing boom in 2005. Starts next year, however, are forecast to rebound to 755,000 and to continue climbing in the ensuring years, up to 1.8 million in 2013. That expectation is based in part on the formation of an estimated 1 million households annually, representing a pool of pent-up purchase demand.

Since new residential construction under normal conditions is the single largest market for structural wood panels and other structural engineered wood products, the rise in housing starts is expected to lead the way to recovery for the panel and engineered wood industries. U.S. and Canadian softwood plywood and OSB production is forecast to rise next year to approximately 27.7 billion sq. ft. (3/8" basis), up l4%o from 24.2 billion ft. this year. Almost 80Vo of the increased production is expected to result from growing demand in the new residential construction market.

Industry production of glulam timber, wood I-joists, and LVL also is expected to climb next year, up 2lVo, 66Vo and 3 5Vo, respectiv ely

The forecast is for the remodeling and industrial markets also to show improvement next year, with structural panel demand in those sectors tp 7Vo and 6Vo, respectively. Panel demand in the nonresidential construction, on the other hand. is forecast to be down again slightly next year, following a l2%o decline this year.

Industry production is expected to total less than 6O7o of capacity this year, among the lowest ratios in the industry's history. That ratio is expected to climb to 657o next year and to reach 907o in 20 13, when industry production is forecast to reach 41 billion sq. ft., a level last reached in 2005. The average ratio over the 15 years prior to 2008 was almost 917o. The substantially changed market supply and demand mechanics have made structural wood panels and other engineered wood products good bargains over the past several months.

Excluding shipments from Canada, U.S. imports of structural plywood are forecast to total just 430 million sq. ft. this year, down 24Vo from last year and more than'75Vo from 2005. OSB imports are expected to be up slightly this year, to approximately 60 million ft., but down more than 9O7o from the 2005 peak of 744 million. The overall decline of panel imports extends a trend that began in 2006 with the col- lapse of the housing market and resulting excess domestic production capacity. Panel imports are expected to begin rising again next year and to continue climbing in ensuing years in response to increased demand generated by the improving housing market.

& Canadian StructuralWood Panel & Engineered Wood Production Forecast (2008 - 2010)