Timber Industry Balancing Renewed Confidence And Concerns

Editor’s note:  This article, written by Ethan Nobles, appears in our latest magazine edition of Talk Business Arkansas, which you can read at this link. 

Arkansas timber industry officials said lumber markets have a way to go before they are operating at what they’d consider normal levels, but increases in homes sales in the Natural State have led to some new construction and the promise of better days ahead.

According to The Arkansas Housing Market Report published by The City Wire, realtors closed 20,644 single family, residential homes sales last year in Arkansas’ largest housing markets. That’s up 12.9 percent over 18,280 sales in 2012 and up 15.6 percent over 17,845 sales in 2011. Still, last year’s numbers were down 16.7 percent from 24,789 sales in 2005 when the state’s housing market was at its peak.

The timber industry in the state has seen some declines over the past few years, too. Larry Boccarossa, executive director of the Arkansas Timber Producers Association, said his group represents people who are involved directly in harvesting trees and producing lumber. That industry, nationally, has declined by 30 percent since 2005, Boccarossa said, adding that in Arkansas there were 15,476 people employed in his industry in 2005 – that number had dropped by 32.2 percent to 10,495 workers last year.

Still, Boccarossa said that demand for timber has increased somewhat over the past few years, but lumber mills are still not at full capacity and people who supply trees to the industry haven’t seen their prices increase dramatically.

“It’s making the turn, but we’ve got some time to go,” he said.

GROWING CONFIDENCE
Ray Dillon, CEO of Deltic Timber Corp. in El Dorado and president of the Arkansas Forestry Association, said his company has been encouraged by growth in the housing market because that is a sign that new home construction will be on the rise. Residential construction is critical to the success of the timber industry, he said, because 75 to 80 percent of all lumber made is used to build single and multi-family residences.

Dillon said his industry considers 1.5 million housing starts to be the norm for the United States. According to the U.S. Census Bureau, there were 923,000 housing starts in the United States last year and the bulk of those – 618,000 – were for single family residences. The 923,000 starts represent a substantial increase over 554,000 housing starts in 2009 but is off from the peak in 2003 through 2005 when 2 million starts were typical.

The number of housing starts in 2009 is the lowest reported since the U.S. Census Bureau started tracking those starts in 1959. The highest number of starts on record is 2.22 million in 1972, while the second highest is 2.16 million in 2005.

Still, Dillon said housing starts are clearly moving in the right direction and timber industry insiders are expecting 1.1 million to 1.15 million in 2014. Gradual growth, he said, appears to have taken place and few people are looking for radical increases in housing starts or homes sales, for that matter.

Dillon said it appears that excess housing inventory, which is largely composed of existing homes, is thinning in several areas around the state and new construction has picked up somewhat as a result. Shrinking inventory, of course, is driven by sales and 2013 represented a move in the right direction.

Kathy Deck, director of the Center for Economic and Business Research at the University of Arkansas, said she is optimistic about the outlook for housing in 2014.

“I think it’s clear,” she said. “If we look at the whole year, 2013’s average price sold was as high as it’s been in the state. … It’s hard to come up with a word other than ‘recovery.’”

Deck said she anticipates continued, slow improvement throughout Arkansas markets this year, in spite of the threat of increasing interest rates.

NOTES OF CAUTION
Allison Scroggins – a realtor with Truman Ball & Associates in Benton – said she has observed excess housing inventory decline in her market over the past year. She said there has been a slight increase in new home construction, but builders are still cautious considering sharp downturns in the market that started in 2007 and increased in severity in 2010.

Scroggins said, however, that upper end, custom home construction is in demand in Saline County. She said she’s seen a rise in the number of people who tire of looking at existing homes and decide to invest in building exactly what they want.

Boccarossa said builders are not the only ones who are cautious in the current environment. He said a lot of loggers are private contractors who have families and their children – after watching the industry decline – may think twice about getting involved in it when demand is at a point where more loggers are needed.

He said the average age of loggers in Arkansas is 55-years-old, so some younger people will have to enter the industry to replace those who are retirement age. Logging has been a tough business for many families over the past few years, so Boccarossa said he hopes too many people aren’t dissuaded from entering the profession when the demand for their services increases in the years to come.

Dillon said there is another concern: landowners with forests that haven’t been maintained while demand for timber has been down. He pointed out that timberland is well maintained – timber is a resource and, as such, landowners and people involved in the timber industry have an interest in making sure trees stay healthy and underbrush is removed.

That underbrush, he said, contributes to forest fires of the type that have been springing up in the western part of the nation and chokes out the habitat of some animals.

Well-maintained forestland, he said, is good for wildlife, soil quality and the environment as a whole.