METLIFE AGRICULTURAL FINANCE FORECASTS U.S. HOUSING STARTS TO BE 16 PERCENT BELOW CONSENSUS, REACHING ONLY 1.5 MILLION BY 2020

METLIFE AGRICULTURAL FINANCE FORECASTS U.S. HOUSING STARTS TO BE 16 PERCENT BELOW CONSENSUS, REACHING ONLY 1.5 MILLION BY 2020

NEW YORK, July 20, 2016

The huge Millennial generation has not yet reached home-buying age and credit remains tight, causing MetLife to predict that housing starts will reach 1.5 million by 2020, 16 percent below consensus. The resulting weakened demand for lumber will continue to weigh on pricing and demand over the near term. However, emerging supply shortages will bolster U.S. timberland investments, according to Millennials, Housing, and the Timber Recovery, a new study by MetLife Agricultural Finance.

“We believe that the primary headwind to a fast recovery in housing starts is that the homeownership rate will remain below the historical average of 65 percent through 2020,” said Hugues Rinfret, director of research, MetLife Agricultural Finance. “This is due to continued credit availability constraints and its impact on 35-44 year-olds, as well as the fact that 90 percent of the Millennial generation have not yet reached age 31, the median age of first time home buyers.”

The U.S. lumber market is closely tied to U.S. housing starts. Homeownership rates are at 36-year lows and, at the end of 2015, lumber prices were nearly 20 percent below their 2004 peak. For the next five years, lumber demand and pricing is expected to remain below the historical average. However, according to the study there is a positive outlook for lumber demand over the medium and long term. This is in light of the expectation that Millennials will eventually purchase single-family homes in greater numbers, coupled with the emergence of non-housing demand drivers.

The study also finds that:

• Timberland values have been surprisingly resilient, despite low timber prices. More than a decade of low interest rates and the more than 30-year timberland investment time horizon explain the resilience in timberland values. Over thirty funds currently manage more than $57 billion of timberland assets for investors who cite the long term investment horizon, low correlation with the general economy, biological growth regardless of economic conditions, and a relatively stable stream of cash flows as appealing characteristics of the asset class.
• Despite short-term headwinds, the long-term outlook for U.S. timberlands as an asset class is positive. A slowdown in the annual acreage growth of planted forests, supply issues in British Columbia, Canada, and new global demand drivers suggest the potential for a growing timber supply deficit. MetLife Agricultural Finance believes that the U.S. timberland asset class is particularly well positioned to meet the world’s increased demand for wood and wood fiber, making investments in this sector attractive for investors with long-term horizons.

A copy of the study is available upon request.