For Dan Fulton, the daily changes to the vital signs of the housing business are of critical concern.

As the chief executive officer of Federal Way’s Weyerhaeuser Co., the housing industry’s health plays a direct role in Weyerhaeuser’s own vitality. Since shedding its packaging and fine-paper businesses in recent years, Weyerhaeuser’s business has become increasingly focused on growing timber, sawing lumber and building homes. The company operates one of the Puget Sound’s biggest homebuilders, Quadrant.

Fulton, just a year in Weyerhaeuser’s top executive job, recently discussed the housing business, its woes and its prospects for recovery.

Tell me how the worldwide recession has affected the housing and building products business.

What we’ve been through in wood products has been unprecedented. If you think about the car manufacturers testifying in Congress about all their problems with sales off 20, 30 or 40 percent, and then you look at the decline in wood products, where you have not only a huge volume decline, you have a price decline. In the automobile business, you still have prices that reflect 2009. In the wood products business, the prices that you’re getting for basic commodities have dropped to levels you haven’t seen for 20 or 30 years. So you have that awful combination of both price and volume decline.

What does the economy and the housing industry need to regain their energy?

What the general public needs is a sense of optimism. And I think that’s the job of the administration now, to relay a sense of optimism. I think President Obama is attempting to do that.

In order for the mortgage market to really regain its efficiency we need to have Freddie Mac and Fannie Mae securitizing loans so that we then see more originationsthat occur at the local level through local banks.

Are home loans readily available now?

Loans are available. You have to have better credit. You have to have a down payment. Qualified buyers are getting loans. And in our homebuilding business, we’re selling homes every week. We’re not selling the volume we like, but we’re selling homes in every single market in which we operate. Cancellation rates have come down a bit. And that’s a good sign.

How will we know that the housing industry is regaining its feet?

What we look for as signposts in the homebuilding business are cancellation rates, home price changes. When we start to see stabilization in home prices, cancellation rates start to come down. People are more confident. They make a commitment. They follow through.

Why, once the financing sector is stabilized and the economy is improving, will the housing industry spring back?

We are underproducing homes in this country right now. If we were to go back and look at the overproduction in maybe ’04, ’05 and ’06, if you compare that to long-term needs for housing we overproduced in those years, we significantly underproduced starting in 2007, so we are now at the point where we’ve made up for all the excess. And I believe that in the long term we’ll get back to the trend levels we had before the overproduction.

Looking beyond the current recession, what will the housing industry look like? Will it ever regain its strong profitability?

In the peak years, ’04, ’05 and ’06, profit margins for homes were extremely high. That was a function of the huge run-up in price. Those margins are not to be repeated for some period of time. I think we’ll go back to the margins we had in 2001, 2002 and maybe 2003.

Our homebuilding business at the top of the cycle generated $700 million pre-tax. I’m not committing to that again because that was at the very top of the cycle. Those were extraordinary returns.

We see some signals that average home size is declining. That to me makes sense. It’s simpler. It’s smaller, and that’s bringing that home price back down to the point where your average prospective homeowner with the median income can buy a new home.

John Gillie: 253-587-8663

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