Buying Land

Forecasting When Seasick: Notes on U.S. Housing and Forest Products

Forecasting When Seasick: Notes on U.S. Housing and Forest Products

In 2020, the U.S. economy offered a smorgasbord of mixed signals. Crashing growth and demand in the second quarter led to a massive fiscal stimulus. Bullish stock indices and housing markets rode uncertain labor markets. Even after tremendous growth in Q3, the economy remained ~3% smaller entering Q4 than it was in January 2020. As investors and analysts, we struggled to look forward when the floor keeps moving.

Consider how forecasts of U.S. housing markets changed throughout 2020. The figure below summarizes housing starts forecasts from multiple sources with Forisk’s Composite Outlook by quarter. We started 2020 expecting ~1.35 million housing starts and we ended 2020 expecting ~1.35 million, but we walked through the valley on the way. Consensus housing numbers fell ~17% from Q1 to Q2 and increased ~14% from Q3 to Q4.

2020 Quarterly U.S. Housing Starts Forecasts by Source

The great explorers and navigators depended on the stars to fix their positions, even as their wandering barks rode the waves. In the forest industry, we rely on physical facts, associated with demographics and forest supplies and mill capacities, to set our models. We aggregate facts to identify trends and derive insights. Then, when gathering market intelligence and transactions for the Forisk Market Bulletin, we double check key risks and assumptions. In this way, we work to leverage data and logic to develop projections.

Finally, we keep track of our results to evaluate performance over time. Through back-testing, we learn to separate the driving factors from the noise in order to make the best use of our available data.

This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of LANDTHINK. Use of this content without permission is a violation of federal copyright law. The articles, posts, comments, opinions and information provided by LANDTHINK are for informational and research purposes only and DOES NOT substitute or coincide with the advice of an attorney, accountant, real estate broker or any other licensed real estate professional. LANDTHINK strongly advises visitors and readers to seek their own professional guidance and advice related to buying, investing in or selling real estate.

About the author

Brooks Mendell, Ph.D.

Brooks Mendell, Ph.D. is President and Founder of Forisk Consulting, a forest industry, timber REIT, bioenergy and timber market research firm. Dr. Mendell has over fifteen years of operating, research, and consulting experience in forest business and finance. Mendell has published over sixty articles and two books on topics related to timber and timberland REITs and markets, forest business management and operations, and communication skills.

1 Comment

Click here to post a comment

  • No mention of the factors negatively impacting the decline. People in many area’s were discouraged from leaving their homes. Business was locked down causing many employee’s to lose their employment. I purchased land and I am looking to develop…vendors are not always as responsive…their staffing might be suffering from a short term layoff. I’m patient others might not be.

The Pulse

When buying rural land, how important is it that your property be located near public land?

ANSWER
THE PULSE SPONSORED BY:

PotlatchDeltic