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US housing market may have peaked

In 2018, expectations are that the US housing market will build something less than 1.3 million dwellings. According to Forest2Market, [https://www.forest2market.com/] that will be the same for both 2019 and 2020, followed by softening in 2021, before growing to around 1.280 million dwellings in 2022, after which recovery will be more substantial. Source: IndustryEdge for Timberbiz

From 2023-2028, Forest2Market estimates that US housing starts will range between 1.55 and 1.80 million dwellings.

The flatline in dwelling approvals for the rest of 2018 and the next two years is expected for the following reasons, as Forest2Market outlines:

  • Despite pent-up demand for housing among millennials, trends suggest they may not take up home ownership in the same way as in the past. Formed during the excoriating experience of the 2008 GFC, many millennials appear to be wary of home ownership. Those aged 25 to 34 in the US are 8% less likely to own their own home than Baby Boomers and 8.4% less than Gen X-ers.
  • Labor shortages already exist in the US housing market and less people are choosing construction occupations. Current policy considerations could reduce the number of ‘undocumented’ construction workers in the US. It is taking longer and costing more to complete construction projects.
  • Land availability is tightening.
  • Sawn softwood supplies appear to be limited at 15.654 billion board feet (BBF). Based on the average amount of sawn timber used in US homes, Forest2Market concludes that through to 2021, the maximum number of homes that could be built would be around 1.440 million per annum.

Whether on a supply or demand basis, what this forecast suggests is that the US housing market may have peaked in its current cycle. If that is the case, there are serious implications for global wood supply.

Here’s what we broadly understand:

  • Historically speaking, if the US housing market experiences slower starts over the next two years, more sawn softwood will be available for other markets, including Australia. Already rising, imports to Australia could increase further, especially if the US market softens because of suppressed demand;
  • However, given the supply-side constraints, the likelihood is that the ‘spare’ capacity would come from imports to the USA, most likely from Europe, the region that is already the significant supplier of imports to Australia;
  • If there was surplus global sawn softwood capacity, prices could be expected to come under downwards pressure, but only for the period around 2021, given the forecasts for US housing starts are more-or-less stable until then.

Factors that have to be weighed in this consideration include the effect of exchange rates, and of course, demand in the domestic housing market. We will explore this in more detail in the November issue of Wood Market Edge, which will be released to subscribers towards the end of the month.

Every month, IndustryEdge publishes Wood Market Edge, Australia’s only forestry and wood products market and trade analysis, and supplies its customers with hundreds of unique data products, advisory and consulting services.

Find out more at www.industryedge.com.au