U.S. lumber 2008 outlook dim as housing woes persist

By Karl Plume - Analysis

CHICAGO (Reuters) - The deepening crisis in the U.S. housing market and a credit crunch will keep lumber prices in the United States under pressure well into 2008, with values already near the lowest levels in 15 years.

Most analysts do not expect what has been called the worst U.S. housing slump since World War II to bottom out until at least mid-2008. Once a bottom is reached in housing, lumber demand could still remain dull for months.

"You've got very weak demand and just a pile of inventory (of homes on the market) to get through before you can get demand for the underlying lumber to pick up down the road," said Paul Quinn, a paper and forest products analyst at Vancouver-based Salman Partners. "That's why 2008 is going to be very similar to 2007."

Lumber prices have eroded this year in tandem with slowing demand from home builders and it is difficult to gauge how far prices will fall with no end in sight for the housing slump.

Wave after wave of negative news from the housing sector indicate demand will keep eroding in the foreseeable future.

Near-record supplies of unsold homes were currently on the market while many prospective buyers have stayed on the sidelines as average home prices have slipped lower and lower.

Meanwhile, tightening mortgage lending standards have shut out some buyers and made it very difficult for those with resetting adjustable rate mortgages to refinance. As a result, foreclosures have nearly doubled from a year ago and experts believe foreclosure rates will continue to climb, putting more homes on the market as banks liquidate them.

RECORD LOWS POSSIBLE