While there has been an up-tic in lumber demand from Asia, building homes in America is still the dominant user of Alberta lumber and it needs to pick up for the forestry industry to really prosper.

A recovery in U.S. home building may take some time.

Today there are roughly 19 million empty American homes (vacation homes, empty for sale/rent homes and homes held off market), about 45% higher than typical, which doesn’t provide much incentive to build.

Excessive building prior to the recession is making things worse.

Between 2004 and 2007, the housing stock increased by roughly 22% more than was necessary to accommodate the formation of new households.

Some of the excess will go away quickly if the U.S. job situation improves. Not only have housing starts been in the doldrums for years, limiting supply, but future demand is certainly building.

Fewer than 400,000 net new households (about a third of what the historical average would be) have been formed in each of the past two years. Many individuals are finding roommates and/or staying with their parents longer, so it’s presumable that when their finances improve they’ll want to move on.

Total Canadian sawn lumber production has dropped over 50% since the onset of the U.S. recession.

Albertan production, however, has held relatively constant. But while Albertan mills have kept production up, the price they are receiving has dropped significantly (roughly 30% since ‘06).

Less productive mills were shut, helping bolster the price somewhat, but the industry is still waiting on U.S. housing starts to rebound before they breathe a sigh of relief.

Will Van’t Veld

ATB Financial