What is the most promising story of 2012? According to Time magazine, it's The Great Housing Rebound of 2012.
"Without a doubt, the U.S. housing market has been the most successful sector of the economy this year, and Wednesday’s Case-Shiller home price index report — which showed a fifth consecutive month of year-over-year increases in home prices nationwide — was a late Christmas present for homeowners across the country.
The housing market “bottom” was one of the biggest business stories of 2012. After years of falling home values, the data clearly showed that the bleeding stopped somewhere in the first part of 2012, and that home prices have actually begun to slowly rise since then. In addition, other indicators like housing starts, new home sales, and foreclosure statistics all point toward a healing housing sector.
These dynamics have gotten some economists and market analysts excited about the growth prospects for the U.S. economy in 2013. Robert Johnson, director of economic analysis for Morningstar, called housing, “the big change factor in 2013,” and believes that “direct housing investment will be a meaningful contributor” to economic growth in 2013. He also sees industries related to housing — like furniture manufacturing and sales — adding to economic growth in 2013 as the housing market begins to pick up."
Not mentioned was that the Case-Schiller report included the news that even though there was indeed a fifth consecutive month of year-over-year housing price gains, 12 of the 20 cities in the survey reported lower prices in October than in September. In other words, prices are better than last year, but they're still soft in most places. And they have a long way to go to recover the price paid for most homes purchased in the last decade.
There was a lot of this type of hype about the "housing recovery" in 2012, but mostly that is all it was...hype. The (slightly) increasing number of housing starts is being fueled by investors taking advantage of ultra-low interest rates and an upturn in multi-family housing for rental property. Most Americans, however, are still absent from the housing market, buyers due to extremely tight credit conditions and sellers due to the still-suppressed pricing of housing in most regions of the country. Annual housing starts data, which showed an increase of more than 10% in 2012, is still only about half of what used to be considered a healthy level of housing activity.
Pay no attention to that man behind the curtain.
But there was at least one story that developed in 2012 that does seem to reflect hope for the future of the wood products industry in the United States. That is the story of the rising support for "forest restoration" and specifically, the story of the Four Forest Restoration Initiative in northern Arizona.
Forest restoration has arisen out of the great work by various industry and community groups in the West to recognize that past management of public forests, which emphasized fire exclusion and priorities on endangered species habitat, had created vast acres of overly dense, small-diameter timber. And that these stands are the primary reason we've been witnessing so many large forest fires in recent years. Forest fires that tended to not only damage the habitat being protected, but also threatening the lives and homes of local communities.
These practices, which severely curtailed forest harvesting and drove up log prices in many areas, also had the unintended (?) consequence of shutting down local timber industries. In northern Arizona alone, ten different operations producing nearly 300 million board feet of lumber and over 600 million tons of wood pulp closed in the last twenty years...and all closed before the current economic downturn.
But local interests and their partners in the US Forest Service worked hard to find a way to turn around the flawed policies of the past and get the forest resource of the area, specifically, the ponderosa pine forests of the four national forests in the region, back to work for the good of the folks.
The result was the Four Forest Restoration Initiative, or 4FRI. Under the initiative, more than 2.4 million acres will be "treated" for restoration, the primary component of which will be commercial thinning of small-diameter stems by local forest products industries. The principle industry partner is the start-up firm Pioneer Forest Products, which has started construction on a sawmill to process the small-diameter stems into lumber for finger-jointing into components that can be sold into the furniture markets. A certain portion of the biomass harvested, that not consumed by the lumber operation, will be processed as fuel for the operation of the company's dry kilns and eventually, for bio-diesel.
The project has been years in the planning, and now participants are beginning to see tangible progress. More than 1,000 jobs are projected to come to the area in next decade, as Pioneer is scheduled to start-up its logging operations next summer and the mill in the fall. And local community groups appear to be in support of the concept of "industry-supported forest restoration".
The project has a murky side. Pioneer's business plan for vertical integration of the operations from forest to furniture and biofuels sound good, but faces a daunting challenge in today's depressed and hyper-competitive marketplace. Some supporters of forest restoration seem to view industry participation simply as a way to come up with funding for environmental goals. And the details on the contracting agreement between the Forest Service and Pioneer seem to be proprietary, so I'm not sure whether the financial arrangement for the "treatments" will hold up over time. But Pioneer's management team seems to have a solid business background and experience, and the concept makes sense to me if the Forest Service has in fact given a contract to Pioneer under conditions necessary to make the business viable over the long-run.
The 4FRI is a new model for forest utilization, one similar in many ways to European timber-industry models. It remains to be seen if it can work here on our nation's more than 322 million acres of public forests. With that much public forest to manage, we need to find a model that will allow sensible harvesting, both for the benefit of local community economies and the health of the forest ecosystems. And we need a vibrant economy to consume the wood products, or no industry cooperation will be sustainable.
If "forest restoration" is the vehicle which re-kindles our nation's interest in practical and beneficial forest harvesting, then let's ride that horse. Who knows, the idea may grow, and someone may be able to make a profit somewhere along the way.
Here's hoping that 2012's most promising story of the year turns into 2013's success story of the year,
Dr. Charles D. “Chuck” Ray is Associate Professor of Wood Operations Research at Pennsylvania State University. His specialty is in the area of operations research, specifically those operational issues that confront the majority of the wood products sector. He previously spent 15 years in research and quality management for two large building products corporations, Temple-Inland Forest Products and Louisiana-Pacific. Ray is the sixth generation of his family to work in the sawmill industry, the Ray Brothers Lumber Company, established in East Texas before the turn of the last century. He can be reached at firstname.lastname@example.org and followed on Twitter @ChuckDRay. He maintains an Extension website for Penn State at http://extension.psu.edu/woodpro and also writes a blog on all wood issues called Go Wood which can be found at http://gowood.blogspot.com.
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