At a time when the U.S. housing market is in its worst condition since home ownership began to boom after World War II, railroads are hauling more lumber in 2011 than they did last year.
Major railroads across North America loaded 194,513 carloads of lumber and other wood products for the 37 weeks through Sept. 17, up 8.6 percent from the 2010 pace.
In fact, lumber shipments have been getting stronger as this year continues.
Although both single-family home sales and new starts of individual homes weakened in August, and September has seen a huge selloff in financial markets amid new blows to confidence, lumber volume in recent weeks has at times run 20 percent ahead of the same weeks last year.
To understand what’s supporting the sawmill market, “forget about single-family housing starts,” said Gary Vitale, president of the North American Wholesale Lumber Association.
The growth in lumber production is not mainly driven by home remodeling or exports or infrastructure projects, he said, although all have helped parts of the sawmill market.
Instead, the biggest driver is a surge in apartment buildings. “There is a significant increase in multi-family housing construction,” Vitale said, that is pulling most of the demand for lumber.
There is also solid growth in demand for wood to make pallets and crates, as manufacturers of heavy equipment or other crated goods get their products ready to ship abroad or to other parts of North America. “They are seeing a bit more of a recovery than those in our industry who are more dependent on the housing market,” Vitale said.
What’s going on with lumber is another example of how rail freight shipments show a surprising resilience in underlying economic activity, so far at least, to counter the dire warnings that a new recession could be setting in.
Total railcar loadings of non-intermodal cargoes, at Class I and large regional railroads across North America, are up 2 percent so far this year. Lumber volume is more than four times that strong.
Lumber has a wide range of uses, from framing in residential buildings to concrete forming in big construction projects, plus the crates to carry factory goods.
By early September, U.S. lumber production was up 7.7 percent from 2010, and Canadian output was up 3 percent.
That comes at a time when big parts of the giant U.S. housing market appear nearly strangled. Residential builders in August were starting new ones at an annual rate of 571,000 units. At the peak of home building in 2005 and early 2006, about 2 million residential units were being erected, with 1.7 to 1.8 million of them single-family homes.
The plunge after that, and even more dramatically once the 2008 financial crisis killed off mortgage lending for a while, hit all parts of the industry hard. But owners of rental units have been able to recover faster as many would-be home buyers stayed put, while an overhang of foreclosed or distressed-sale houses and still-tight credit terms have kept single-family housing in the dumps.
The result: For the first eight months of 2011, the Census Bureau said new U.S. starts of single-family homes totaled 291,400 units, down 13.4 percent from the same point in 2010. But construction of buildings that had five or more family residences – rentals and condominiums – was up 44 percent to 100,300 units.
There are signs housing could be stabilizing. The National Association of Realtors said sales of existing single homes, townhouses, condos and co-ops rose 7.7 percent in August from July and was up 18.6 percent from a year earlier.
NAR Chief Economist Lawrence Yun said the rise came as “investors were more active” in buying foreclosures at a bargain, but some of the gain also reflects “favorable affordability conditions and rising rents” driving buyers into the market.
Sales of new single homes fell in August, the government reported, but were 6 percent higher than in August 2010.
Sawmills have been scrambling to keep markets or carve out new ones for their lumber. Mills in western Canada and the U.S. Northwest have increased their exports to China, which needs concrete forming lumber. Northern hardwood shippers sent wood around the continent for floor remodeling. Railroad tie production helped keep some mills alive.
But those are smaller factors than the surge from U.S. industrial crating and especially from construction of multi-family buildings.
Last month, U.S. single-family starts were down to 23 percent of their boom-time peak from January 2006. They have shed some share of the market in recent years but are still 73 percent of new starts.
Multi-family starts in August were 35 percent of their peak volume. And they now make up 26 percent of total new starts, compared with 19 percent back then.
NAWLA’s Vitale said while new construction of apartment-type buildings is starting from a low base, “it’s still a significant number, and it really does have an impact on the amount of lumber being shipped.”
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