US lumber prices have been climbing since their recent bottom in mid-July. A \u201cnormal\u201d cycle sees prices dropping from early September until early in the new year when buying starts again for the spring construction season. With lower mortgage rates expected, will we see a hotter housing market increasing demand for lumber and lumber prices?<\/p>\n
Background<\/strong><\/p>\n Until 2020, the price of lumber was generally in the range of US$250 to US$500 per thousand board feet (1,000 bdft). During the initial days of COVID-19 the price of lumber dropped more than 50 per cent to US$280. Since then, we have seen it rise and fall three times by at least 50 per cent, reaching an all-time high in May, 2021, of US$1,686. Based on more active supply-side management from the producers along with higher input costs, lumber is now in a \u201cnew normal\u201d range of US$350 to US$600 and is currently sitting about US$536 per 1,000 bdft.<\/p>\n Supply side<\/strong><\/p>\n Although many mills continued to run during previous tough times to drive high-cost producers out of the market, mills are taking downtime more quickly now to support prices. 6 per cent of production (or 1.7 billion board feet) has been curtailed from January through August of 2024. Canfor Corp., West Fraser Timber Co. Ltd. and Interfor Corp. have all announced since production downtime: Weak lumber markets, high fibre costs and increased U.S. tariffs on Canadian softwood lumber are cited as the main reasons. Canfor said in September that it will close two mills in B.C. this year, affecting 500 employees and eliminating 670 million board feet of production annually. West Fraser is reducing production by 110 million board feet annually at its sawmill in Lake Butler, Fla., affecting 130 employees. Interfor announced that it is indefinitely shutting operations at its Meldrim, Ga., and Summerville, S.C. sawmills. The mills have a combined annual capacity of 330 million board feet and 180 employees.<\/p>\n On Aug. 13, the U.S. Department of Commerce raised tariffs on imports of Canadian softwood lumber products from the average rate of 8.05 per cent to 14.54 per cent. This increase now means there is a tariff of about US$60 per 1000 bdft on lumber exported from Canada to the United States.<\/p>\n After a slowdown in homebuilding activity over the previous months, U.S. housing starts as of August sit at 1.36 million annual units, up 9.6 per cent month over month. Building permits were also up 4.9 per cent in August to 1.48 million annual units. The increase has been driven by an uptick in single family home construction offsetting falling multi-family home activity. Canadian building permits also jumped 22.1 per cent in July, led by strong non-residential construction. The average rate on a 30-year fixed mortgage in the United States fell to 6.09 per cent, its lowest since February, 2023. Mortgage rates are expected to fall further in the near term, continuing to support demand.<\/p>\n Housing shortage and GDP<\/strong><\/p>\n According to real estate marketplace portal Zillow, the United States is now short 4.5 million homes as the housing deficit grows. It says that in 2022, the number of U.S. families increased by 1.8 million, while only 1.4 million housing units were built. Its home value index also shows a rising trend since 2012. In simple terms, supply is falling while prices and demand are rising.<\/p>\n The National Association of Home Builders found housing\u2019s combined contribution to gross domestic product (GDP) generally averages 15 per cent to 18 per cent, with residential investment (construction of new single-family and multifamily structures, residential remodelling) at 3 per cent to 5 per cent of GDP and consumption spending (gross rents and utilities) averaging 12 per cent to 13 per cent.<\/p>\n The underlying messages are: falling mortgage rates are supporting a stronger housing market which in turn is helping guide us to a soft landing in this economic cycle. When we combine that with strategic industry downtime and a large deficit in the home supply, we should see lumber prices maintain the higher end of their new normal range into 2025 after a seasonal dip near year-end.<\/p>","protected":false},"excerpt":{"rendered":" US lumber prices have been climbing since their recent bottom in mid-July. A \u201cnormal\u201d cycle sees prices dropping from early September until early in the new year when buying starts again for the spring construction season. With lower mortgage rates … Continue reading