Hope in the Horizon for Foreclosure Hit Forestry Industry

May 29th, 2009 | Tags: Foreclosure

There seems to be rays of hope in the horizon for foreclosure hit forestry industry. Hank Ketcham, one of the moguls of Canada’s jumbo lumber companies, thinks that the besieged industry has at last reached its bottom and a “significant rebound” is about to take place because of record breaking low interest rates and affordable housing in major USA markets. He said, “It’s really hard for me to believe it can get worse.” A forestry analyst of RBC Capital Markets, Paul Quinn is of the opinion that the lumber industry has reached its bottom. He supported his claim with figures of more stable housing starts in USA markets. March figures were better than February.

Ketcham was addressing a meeting of investors. Lumber prices were the lowest since the last 25 years leading to huge production cutbacks. He said, “I think the industry has gradually downsized itself to the point where - we are not feeling any strength in the market - but I do think we have to be pretty close, at the bottom, that’s what I think.”

He was presenting the gloomy first quarter accounts of the firm. He noted that very recently the price of lumber has gone up a wee bit but it was too early in the day to say this was recovery. He added, “Our markets and the economy in general continue to be fragile and our operating strategy will reflect this.”

The bright side is that the affordability of houses has gone up in USA – the best in 40 years. Mortgage rates too have gone down. Thus eventually there is hope that the lumber industry too will turn around when the list of unsold houses will once more become normal. Nearly 80% of softwood that is made in Canada finds its way into the USA markets. Since the last two years, following the housing slump across the border, the lumber industry across the border in Canada has been in the doldrums.

Statistics showed that housing starts on an average was 523,000 units during the first quarter this year. It was 20% less than the last quarter of 2008, 50% less than the first quarter of 2008 and 70% less than the peak year of 2005.

The fact however is that real estate prices continue to fall as foreclosures remain unabated. The turnaround will depend on the results of the stress tests being conducted on banks that will focus on the health of banks and how much capital they have to be able to push ahead.