One subject continues to grab the headlines in Ireland – the housing market.
Not surprising when you consider how much of the Irish economy is driven by this sector. Major changes have potentially wide ramifications.
A report published in April by Allied Irish Banks’ (AIB) Global Treasury team says the housing market did not show any signs of collapse despite widespread media speculation about the bubble bursting.
John Beggs, AIB chief economist, said there does not seem to be any moderation in new housing output and completions could come close to last year’s 68,819 record. But he suggested a lessening in output should help achieve a more sustainable growth pattern.
In the short-term, demand should be supported by a pick-up in economic growth and continuing low interest rates.
Mr Beggs also said the absence of any significant increase in households headed by one adult could result in a growing number of vacant investment properties.
Meanwhile, the European Central Bank and the International Monetary Fund have issued warnings about Ireland’s growing mortgage debt and rising property prices.
In a special study of the Irish market, the Central Bank found the ratio of household debt to disposable income has more than doubled over the past decade – personal debt now represents almost 100% of the average worker’s after-tax income.
The Gunne Report, an analysis of the 2003 residential market, recorded a 12% growth in second-hand house prices last year, compared to 15.2% in 2002. The average cost of a second-hand house in Ireland is now about €267,000, while in Dublin it is €350,000.
Rental yields in the investor market fell from an average of 4.6% in 2002 to 3.9% last year, but are expected to stabilise in 2004. The report also forecasts Greater Dublin new house prices to increase by 4-6% this year and by 3-5% nationally.
The importance of the housing market to the timber trade was succinctly summed up by one merchant: “If the housing market bursts then the whole economy is in trouble.”
He suggested investors had largely pulled out of the market in Dublin and there were many empty apartments because rentals were too high. He said the housing market and prices were being driven by developers and cheap interest rates, with plenty of money available from lending.
“There seems to be no cap on lending”, he added. “The housing market is the only thing out of control. It’s a major issue for the whole of the country.”
Paradoxically, the growth of timber frame housing (more than 20% of all new homes in 2003) is said to be not especially good for the timber industry.
This is because timber frame factories mainly use a systemised approach and source a lot from overseas, such as Sweden and Finland.
One sawmiller said his mill did supply home-grown CLS to a few timber frame builders but traditional builders’ merchants were “not getting a look in”.
This point was confirmed by a merchant who described timber frame growth as the “big change” in the market so far in 2004. He said increased apartment block building was also not helping as these were mostly steel and concrete.
Hardwood volumes
Tropical hardwood volumes to Ireland have been dropping, partially due to the environmental issues, but also because of price and supply. Instead, laminated softwood “looks like the way forward” in the joinery market, said one source.
Prices in the softwood trade are reported to be largely static, with an oversupply in redwood.
Russia is back in the export business to Ireland. One sawmiller said it had been a “bit quiet” since Christmas, with more imported timber around. He said the Russian wood was very good quality and cheap and he expected domestic business to pick up following the Easter holidays.
Another sawmiller described the market situation as very buoyant, with sawn timber prices holding “reasonably well”. However, he reported pressure from imported Estonian timber.
He said: “Once the imported timber comes in, the home-grown mills are getting what business is left.”
On the merchanting side, a contact described pricing as “weak” and demand was poor for joist products. Plywood and OSB sales were “excellent” though he thought there may be a shortage of the products.
A board producer told TTJ: “In general the demand has been quite reasonable for the last four to five months. We would be hopeful of some possible price increase this side of summer.”
Value-added products such as overlay boards have been good and parts of the UK market for plain chipboard have also been healthy. Kitchen and bedroom sectors remain strong due to continued prosperity in the residential market.
But the exchange rate has proved a problem with imports in sterling recently being more competitive.
Prices reduced
After listening to concerns from the sawmilling industry, Coillte has reduced prices of large roadside construction logs by €4-5/m3 in the first quarter.
Log prices had gone up towards the end of 2003 because of demand but continued fears about the potential effect on end markets persuaded Coillte to peg them back.
So far in 2004, Coillte has offered a total of 855,000m3 at auctions, with 655,000m3 being sold (standing and harvested), which is considerably behind last year’s rate.
One reason for the fall is the large amount of packaged timber being offered in previous years (often windblown). This year Coillte has not offered packaged timber.
Also, about 50,000m3 had been paid for at the end of 2003 but was not taken into sawmills until early this year. Another possible reason is the large importation of Scottish logs.
A Coillte spokesperson said: “The market has been quite good in terms of the sawn timber market. There is still a lot of buoyancy around.”
He said the better performing mills during the first quarter were those operating in the fencing and pallet sectors.
“In general, demand for the small sawlog has been good because we are in the traditional pallet and fencing season.”
So, although Coillte has not recorded the sales volumes it might have liked at this stage, it still sees the market in general as “good”, particularly as the construction industry looks set to continue its healthy march.
