Southern Oregon log prices broke last month’s 25-year record. Stud lumber prices adjusted upward this month, but mills are way below capacity due to shortages of logs and labor. Mortgage rates are up. Recent trends of lumber, logs, home construction, and housing markets, are compared in this month’s timber report.
Interpretation and Looking Ahead
The price of Lumber has jumped into near-record territory at $410 in response to recent log price increases. Still, studs as reported here lag behind many other solid wood lumber products. Random Lengths Composite Framing Lumber price is $509 this week. Random Lengths also reports that pine lumber from the South is spreading its reach into markets traditionally held by the Midwest and West. This is happening because of the near-record prices and supply shortages for many fir products. One local mill in Roseburg cut back to one shift a month ago due to a shortage of logs.
Log prices also continue to rise dramatically, in near-term record territory. For comparison, the January 2017 price of $720 is a more typical high price. Today’s nearly all-time record log and lumber prices, as reported last month, are also still cheap on an inflation-adjusted basis compared to the high prices of the 1990s. Inflation-adjusted to the ’90s prices, the log price today would be $1,522. Logs and lumber, at $892 and $410, are bargains.
Housing starts and building permits are also rising; they are more consistently in the 1300’s than recent years. There is considerable pent up demand for more housing, so this trend will likely continue if mortgage rates do not get too high.
The weekly price of mortgages has also continued to rise again this month, reaching 4.40 percent this week, a number not seen since April 2014, and 4.03 percent for the month. Taking a very broad look, mortgage rates have been on a gradual downward trend from a high in 1981 of 18.53 percent to a low of 3.31 percent in 2012. Since 2012, rates have fluctuated between 3.4 and 4.6 percent. Based on the changes in the cost of money and fundamental interest rates, sub-4-percent mortgage interest rates on 30-year fixed rate loans could be history, at least for the near future.
Each year in February, I choose a couple of prior years to compare to the prices of recent months. This year, the two choices are 2005, a traditionally good year, and 2009, which was deep into the Great Recession. In January 2009, studs hit their lowest price for the recession at $137/MBF, and unsold inventory of homes hit its highest level of 19.2 months. In January 2005, housing starts and building permits were over 2 million units — numbers which are unheard of today, and not expected to return any time soon.
Near-term high prices on both the log and lumber side, combined with technology, and despite the reduced volume of production, still create a strong wood products business climate. But the climate could be even better with more supply of wood. Western Oregon’s federal forest lands are under-managed, and the impacts of wildfire are devastating in the woods. It is a shame that more federal timber is not being thinned to mimic and ease the role of fire of our “dry forests” of southwest Oregon, where fire played a significant historical role. This lack of harvest contributes to a log shortage in Oregon. The causes, as previously discussed, are both log supply and labor shortages, long term problems which beg for long term solutions.