Five predictions for real estate and timber in 2023

GEOPOLITICAL ANALYSIS. After a very volatile past year, will we see the same in 2023 in residential real estate and lumber in North America? Fastmarkets, a firm specializing in resource price analysis, makes five predictions that should affect you one way or another.

The stakes are high. Because significant volatility in the price of lumber or a major change in supply and demand for real estate will have an impact on consumers, construction contractors and producers of forest products.

Here are the five forecasts that Fastmarkets makes in a recent analysis.

1. Housing starts will fall

The outlook for new residential construction in 2023 looks challenging to say the least.

Since the beginning of 2022 (13 months), new home sales in the United States have decreased by 20 to 30%. High house prices and mortgage rates have overwhelmed the residential ambitions of many consumers.

And this trend should continue in 2023. On the other hand, the fall should be less brutal than last year. Fastmarkets expects housing starts to fall 13% to 1.36 million units.

2. The demand for wood will decrease

The latest Fastmarkets forecast calls for a decline in US softwood lumber consumption of 4-5% (or 2.2 billion board feet) to around 48.2 billion board feet in 2023 .

Last year, consumption had already fallen by 800 million board feet.

“A 2.2 billion board foot drop in US lumber demand would be the largest single-year volume decline since 2009,” Fastmarkets said.

According to the firm, lumber demand conditions “will still be very challenging” for building materials retailers, wholesalers and mill operators in 2023.

3. Record price volatility is over

Wood prices will still be volatile. On the other hand, we will no longer experience roller coasters like those we have known for three years, assures Fastmarkets.

“The historic volatility we have experienced since the spring of 2020 now appears to be in the rearview mirror.”

Two factors explain this phenomenon.

On the one hand, demand will continue to decline in 2023, due to house prices, high mortgage rates and the risk of recession.

On the other hand, the gap between supply and demand is smaller. That’s not to mention the fact that supply chains have largely recovered from the logistical shock caused by the COVID-19 pandemic.

4. 1.5 G pmp closures in B.C.

Wood supply will be significantly reduced in British Columbia.

Thus, in the next 12 to 18 months, a significant part of the forest industry’s capacity is expected to close indefinitely or permanently. Two factors weigh in the balance: very weak market conditions and long-term fiber availability constraints.

Fastmarkets is planning a retrenchment with a capacity of 1.5 billion board feet.

At the end of January, Vancouver forest products producer Canfor announced a major restructuring in British Columbia.

In April, it will close its factories in Chetwynd (permanently) and in Houston (for an extended period, the time to build a new, more modern and more competitive factory).

These closures will remove approximately 750 million board feet of the company’s annual production capacity.

This represents 1.4% of lumber production in North America.

5. Inflation and interest rates will fall

Although the outlook for the forest products industry looks challenging this year, “there is cause for optimism,” according to Fastmarkets. And that’s largely due to the outlook for inflation and interest rates in 2023.

“This element of the macroeconomic outlook remains a huge joker which will ultimately determine the timing of the real estate recovery,” the firm explains.

Fastmarkets is increasingly confident that inflation is “expected to fall significantly” by the second half of 2023, approaching the US Federal Reserve’s (Fed) 2% target.

In December, inflation stood at 6.5% in the United States, according to the U.S. Bureau of Labor Statistics.