What to Expect From the Lumber Market
July 31, 2017The lumber market is currently unpredictable. If you’re wondering why lumber prices have risen, it is partly because of something called the “lumber wars.” The lumber wars occur between private U.S. lumber businesses and Canadian government-owned lumber mills.
Over the past few years, lumber prices have risen steadily. This is a result of the “trade wars” in lumber in the U.S. that have artificially raised prices in order to compete with Canadian lumber yards.
Initially, the tariff on Canadian lumber was created when lumber yards became owned by the Canadian government. Once the tariff expired, Canada had only until July to renegotiate a new rate. While re-negotiations are in progress, American lumber yards have begun artificially increasing prices to prepare for the result and to avoid competition.
Variability in Lumber Prices
With nominal lumber, like 2x4s, 2x10s, etc., customization options are limited. Builders tend to have to go with what lumber yards are stocking. This is typically Douglas Fir.
Builders and clients do not need to worry about scarcity with this type of lumber as there is usually not a problem with stock. Lumber stock, however, is subject to the price at the time, which can vary based on manipulation in the market or planned times that the mills create artificial deficits to raise prices.
This trend occurs across all construction product industries, including roofing, siding, paving, etc.
Updates, News, and Proposals About Negotiations
Throughout the negotiations and disputes, there have been periods where lumber prices have leveled out. However, any news or updates regarding the lumber trade negotiations have and will continue to affect lumber prices on the market.
For example, the current U.S. Administration has proposed a 20%+ tariff on Canadian lumber. Although the tariff has not yet been imposed, the possibility has driven up the price of lumber.
Strong Demand
In addition to variability caused by lumber trade re-negotiations, strong demand has also caused an increase in lumber prices.
The new-home construction boom is continuing. Housing starts are up 3% this year over the same period last year and building permits are up twice as much.
Add to that a shorter building season due to the harsh winter and the military’s need for wood and you have a high demand in the lumber market.
The Lumber Market Moving Forward
Currently, many home builders are taking losses as they begin to fulfill current contracts. Variability in current lumber prices means builders take a loss on any market change between submitting a bid and the actual build. This cost is not passed on to the consumer.
For new home buyers and new constructions bids, this variability and the current unpredictable lumber market both builders and consumers can expect to see higher average costs.
The current lumber market and proposed tariffs could raise lumber prices even further. However, the increase in the average home build and cost to the consumer is small compared to the current overall cost of constructing a new home.
As negotiations and trade agreements come to a close, the lumber market should start to level out.
If you’re considering new construction, our team at Custom Home Group is ready to answer any questions you may have. Contact us today at (717) 284-4090!