- Investors in timber usually are patient and have a very long investment horizon ranging from a number of years to a few decades.
- Timber has been falling rapidly since early 2006 due to lower construction demand and hence the low volatility claim appears to be jeopardy for now.
- The construction industry appears to be in a long-term slump with October housing starts down 4.5% below September and a whopping 38% below October 2007. Confidence amongst U.S. homebuilders is currently at the lowest level it has ever been since the index of builder confidence was created in 1985.
- Given current market conditions there are several competing and undervalued investments that offer as good if not better yields that timber REITs.
Lumber consumption in the U.S fell 14% in 2007 and is expected to fall an additional 15% or more in 2008 based on consumption in the first six months of the year. One could argue that lumber prices already reflect soft demand with near month CME lumber futures having dropped from $300 at the start of this year to $193.50 currently, representing a drop of over 35%. The current price is also below a 12 year trading range of $200 to $450. For long-term patient investors it may be a good idea to scout out opportunities in this sector in case housing starts improve or home builder confidence turns positive (probably a lagging indicator). One could also dollar cost average into a position over a period of time to smooth out short-term volatility.
