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Survey: Real estate still No. 1 investment

Birmingham Business Journal - by Lauren B. Cooper Staff
Despite a slow national real estate market, a recent survey showed real estate is the No. 1 choice for self-directed investors. Washington-based Guidant Financial Group conducted a survey of nearly 1,000 self-directed IRA holders and found that nearly 65 percent of the respondents said they were considering property as an investment for their retirement savings. Nearly 60 percent chose rental property, more than 36 percent chose foreclosures and preforeclosures and more than 28 percent chose raw land. "These numbers provide valuable insight into the minds of investors," said David Nilssen, president and CEO of Guidant. "It demonstrates that, although the real estate market is experiencing a downturn, many still continue to view real estate as a secure and viable means to growing their nest egg." Other choices, according to the survey, included: tax liens and deeds, 29 percent; business/franchise, 22.8 percent; hard money lending, 22 percent; notes, 19.3 percent; vacation property, 19 percent; foreign investments, 10.4 percent; and securities, 7 percent.

Alabama farmland rises to record value

Birmingham Business Journal - by Cindy F. Crawford Staff
 For the third year in a row, Alabama farmland has posted a double-digit increase in value, rising to a record-high average of $3,100 per acre, U.S. Department of Agriculture estimates show. That's up 10.6 percent from the 2006 per-acre average of $2,750 and 84.5 percent higher than 2000, reported the Alabama Farmers Federation. Auburn University agricultural economics professor John Adrian, who recently completed an analysis of Alabama farmland returns and values from 1970 to the present, said a combination of several factors has fueled the increase, including favorable interest rates, a popular tax incentive and outside demand for land by non-farm investors. Research by Adrian and fellow AU ag economist Walt Prevatt found that since 2000, rates of return have averaged 9.7 percent, with the biggest gains coming in 2005 (up 29 percent), 2006 (up 14.6 percent) and 2007.

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Timber Prices

Retrieved from " http://www.wikinvest.com/concept/Timber_Prices "
Timber, or trees cultivated and harvested for commercial purposes, is used in a wide range of industries. Timber's end products are among the most basic yet widely used goods in the world and include lumber, paper, cardboard, and various containers and packaging materials. In addition to these staple goods, timber has recently been used in the production of cellulosic ethanol , a promising source of renewable energy .

The timber industry is unique in several important ways. First, different end uses require different types of trees. Geographic location largely determines the types of trees timber companies produce, which can limit the industries to which a company can sell its timber. For example, a timber company that operates in just one region where only paper-grade trees grow would be unable to do business with lumber companies. A second notable feature of the timber industry is that its products continue to grow until they're harvested. Unlike other goods from living sources, trees have an extremely long shelf life, allowing the timber industry to weather periods of poor market conditions with relative ease.

Due to its role as a supplier to many different industries, the timber industry itself is subject to a number of external market forces. Conditions in the markets for paper, lumber, or other timber products largely determine the demand, and therefore pricing, in the timber industry as a whole. In addition to events specific to individual markets, general changes in macroeconomic conditions, such as an interest rate increase, can have implications for the timber industry.

Bulls: Reasons To Buy

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  1. Trees keep growing and, thus, increase in value even if nothing is done.
  2. Timberland also has value for other uses and can be sold, leased or developed for many uses other than timber production.
  3. As they say, "God isn't making any more land" (except in the middle of the ocean when volcanoes reach the surface, i.e., near Iceland.)

Bears: Reasons To Sell

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  1. Can tie up your money for many years - and may require continuing investments for taxes, upkeep.

Companies that benefit from falling timber prices

Companies that benefit from rising timber prices

Why timber prices rise and fall

Housing Market
The largest end market for timber products is the construction market, particularly the residential construction market. An average new home built in the U.S. contains over 14,000 board feet of lumber. As such, conditions in the housing market can have a significant impact on lumber-grade timber prices. Increases in residential construction would increase demand and prices for lumber, while housing slumps can put downward pressures on prices as demand declines.

Interest Rates
Interest rates can impact timber prices in several ways. Rising interest rates can have a negative impact on consumer spending, especially in the housing market. As interest rates rise and it becomes more expensive to purchase a home, residential construction will likely slow, decreasing demand for lumber. This would likely lead to lower timber prices. Falling interest rates, on the other hand, could stimulate the housing market and increase residential construction by making it more affordable for people to buy houses. The increased demand would drive prices upward as a result.

Chinese Overcapacity
Declining demand doesn't necessarily lead to lower prices. Timber companies can somewhat offset lower demand by reducing production capacity, thereby tightening the supply of timber goods as well. Due to the organic nature of its products, the timber industry has a particular incentive to cut production and wait out periods of low demand. Instead of harvesting more trees and producing more end products to compensate for lower prices, timber companies can reduce output and wait for market conditions to improve. By the time demand for timber products increases again, the companies' timberlands will have grown in both size and value. Though it requires patience and a belief that the timber market will rebound, many companies take this approach, as it maximizes per-tree profitability.

Chinese timber companies, however, have not scaled back production in times of low demand. They have instead increased production capacity, building more plants and mills despite declining global demand. The Chinese demand for timber goods, particularly paper products, is currently stronger than in the global market, and much of the extra production is consumed domestically. In spite of this, the fact that China is importing less paper from other countries exacerbates the already-decreasing demand facing U.S. timber companies. Increased Chinese production capacity can put downward pressure on timber and paper prices around the world.

Natural Disasters
Timber prices can be significantly impacted by natural disasters. Domestically, timber-producing regions are located in several parts of the country, exposing them to various natural disasters, including forest fires in the West and hurricanes in the East and Southeast. The risk of damaging insect infestations can also pose a substantial threat to timber companies across North America. For example, an estimated 17 million acres of lodgepole pine trees in British Columbia, Canada, have been destroyed in the last fifty years by the mountain pine beetle. These events can all decrease the supply of available timber. In the case of hurricanes and wildfires, demand for timber is likely to increase as well because of the need to replace or repair damaged property, pushing timber prices even higher. Interestingly, all three of these natural disasters are more likely to occur at higher temperatures, indicating that global warming might be a growing factor in the price of timber products.

Environmental Legislation
Environmental conservation groups often criticize the timber industry, claiming that its logging practices are harmful to U.S. forests. These groups lobby for increased legislation governing the actions of timber companies and protecting certain areas of forest lands. Congress has responded, and there are several federally protected forests throughout the country. The timber industry is always at risk of increased governmental regulation, though there have been few instances of this happening in recent years. A Democratic victory in the 2008 presidential election could spur a rise in the number of bills aimed at conserving forests. Legislation such as this would likely decrease the size of commercially harvestable timberlands and drive timber prices upward.