Comments and Questions from Employees

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"Can you explain the history of US housing starts, including the recent decrease? When do you predict a return to normal levels?"

One of the most important drivers for the forest industry and, therefore, the forest seedling industry is US house construction. This market has a great demand for lumber products and is supplied almost entirely by Canadian and US forest companies. For the last 40 years the annual level of housing starts in the US has ranged between 1.0 and 2.3 million, averaging about 1.6 million. Spurred in part by undisciplined lending, the level hit a peak of almost 2.1 million in 2005. The recent turmoil in credit markets and an economic slowdown in the US in 2006 and 2007 has led to a decline in housing demand, including alarming levels of mortgage foreclosures. This put too many homes on the market, causing price declines in major housing markets in the US. Realtors report a ten month inventory of houses currently on the market compared to the normal inventory of three to four months. As of March 2008, seasonally adjusted US housing starts had dropped to about 950,000, and some forecasters think they will go lower yet.

We expect the cycle to bottom sometime in 2008, and then begin to increase. Harvard University's Joint Center for Housing Studies indicates the long-run demand for housing in the US is around 19 million new residences over the next ten years. Currently, Canadian housing starts are contributing a greater percentage of total North American housing starts, at around 250,000 per year, which helps a great deal. Unfortunately, it is not possible to predict when housing starts will return to normal levels, however the fundamental underlying demand for new residences is encouraging.