Who Will Own the Forest? 11

It was time again for the annual Who Will Own the Forest? timberland investment conference held at the World Forestry Center in Portland, OR, a couple of weeks ago.
As with the past few years, Forest Economic Advisors, out of Boston, MA, also held their Forest Products Forum that week.

US MacroEconomic and Real Estate Conditions

US Gross Domestic Product

The US Bureau of Economic Analysis (BEA) on September 25 released its third estimate of real GDP growth for 2Q 2015, raising growth up 0.2 percentage points to 3.9 per cent. The bulk of the additional growth was concentrated in personal consumption expenditures and business fixed investment. Growth was 0.6 per cent in 1Q.

Overall, the composition of growth looks good, the government agency said; strength in personal consumption and fixed investment, both residential and business; less reliance on inventory investment, government spending and trade in a slowing global economy. We expect GDP growth to slow from the current pace in the second half of the year but remain strong and keep the recovery moving forward.

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US Housing as Share of GDP

With the release of the final estimates of 2Q 2015 GDP growth, housing’s share of gross domestic product declined slightly to 15.31 per cent. However, the home building and remodeling component – residential fixed investment – expanded for the third consecutive quarter to 3.21 per cent of total GDP.

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Housing-related activities contribute to GDP in two basic ways.

The first is through residential fixed investment (RFI). RFI is effectively the measure of the home building, multifamily development, and remodelling contributions to GDP.

For 2Q, RFI was 3.21 per cent of the economy, reaching a US$524 billion seasonally adjusted annual pace. This is the highest quarterly rate for RFI since 1Q 2008. The 2Q growth for RFI added 0.3 points to the headline GDP growth rate (i.e. GDP would have expanded 3.6 per cent absent the RFI contribution).

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The second impact of housing on GDP is the measure of housing services, which includes gross rents paid by renters, and owners’ imputed rent, and utility payments.

—NAHB Eye on Housing, “Housing Share of GDP: Home Building Increasing

North America Housing Analysis

Taken together, US housing’s share of US GDP was 15.31 per cent for 2Q.
Historically, RFI has averaged roughly 5 per cent of GDP while housing services have averaged between 12 per cent and 13 per cent, for a combined 17 to 18 per cent of GDP. These shares tend to vary over the business cycle, said the NAHB Eye on Housing.


US Apartment Vacancy Rates

Reis reported Friday that the apartment vacancy rate increased in Q3 2015 to 4.3 per cent, up from 4.2 per cent in Q2, and unchanged from 4.3 per cent in Q3 2014. The vacancy rate peaked at 8 per cent at the end of 2009.
This rise in vacancy has occurred without the deluge of new supply that is in the pipeline but has not yet hit the market.


Vacancy increased by 10 basis points to 4.3 per cent during the quarter with construction slightly outpacing net absorption once again. Although vacancy has appeared to skip off of the bottom, vacancy has been largely unchanged over the last two years as supply and demand have been roughly in balance.

US Real Prices and Price-to-Rent Ratio

The Case-Shiller National US House Price Index increased 4.7 per cent year-over-year in July, data released Tuesday revealed.
The year-over-year increase in prices is mostly moving sideways and is now at between 4 and 5 per cent. In October 2013, the National index was up 10.9 per cent per cent year-over-year. In July 2015, the index was up 4.7 per cent YoY.

Case-Shiller, CoreLogic, and others report nominal house prices. As an example, if a house price was US$200,000 in January 2000, the price would be close to US$276,000 today adjusted for inflation (38 per cent). That is why “real” prices (adjusted for inflation) are important.


In the latest Case-Shiller release, the National Index was reported as being 7 per cent below the bubble peak. However, in real terms, the National index is still about 21 per cent below the bubble peak.

SOURCE: Calculated Risk

US Real Prices and Price-to-Rent Ratio

The US Census Bureau of the Department of Commerce announced Thursday that US construction spending during August 2015 was estimated at a seasonally adjusted annual rate of US$1,086.2 billion, 0.7 per cent above the revised July estimate of US$1,079.1 billion. The August figure is 13.7 per cent above the August 2014 estimate of US$955.0 billion.