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January-February 2019

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both domestic market conditions as well as a decline in China's demand for North American lumber and logs. Housing starts went nowhere in 2018. Just as disturbing was the decline in housing sales (both new and existing units) during 2018, despite favorable long-term interest rates. Finally, lumber capacity began to expand dramatically in the U.S. South in the second half of 2018. Outlook for Lumber Prices: Flat for Several Years Which brings us to the really good news for pallet producers: softwood lumber prices should be relatively stable through 2021. This forecast depends primarily on the outlook for U.S. housing starts and the expected lumber capacity growth in the U.S. South My outlook for housing starts has been revised down. Along with most industry analysts, I had expected housing starts to continue to increase in 2018 and push above 1.6 million by 2020. The improving job market was expected to support a rebound in household formation growth which would translate into a rising demand for new housing units. The growth in household formations did happen. The current growth in household formations of 1.4 million per year should drive housing starts up to 1.7 million per year. But clearly that has not happened. As a result, I have been forced to focus to those finance and supply side factors that have been inhibiting the recovery. One factor has been the restriction of credit to new home buyers because of tougher lending standards. Another constraint has been a challenge for builders in finding enough labor (also means labor they can afford). Finally builders have had a hard time finding buildable lots at a price so they can make a margin. The challenge of finding labor and buildable lots has been deteriorating for years. For instance, in 2011 only 13% of builders palletcentral.com PalletCentral • January-February 2019 25

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