High cost represent a significant blow for builders


Friday, February 18th, 2022

Lumber prices – will they continue rising?

Fergal McAlinden
other

After cooling in January, the cost of the commodity is moving up again

 It’s been a “wild ride” for lumber prices over the past year – and further twists and turns could be down the road in 2022, according to a prominent wood market expert.

Russ Taylor (pictured top), a consultant based in Vancouver, told Canadian Mortgage Professional that while lumber prices – which oscillated wildly in 2021 – were unlikely to skyrocket as significantly this year, sustained high costs would represent a significant blow for builders.

“My common sense tells me it won’t go as high, but knowing how the markets work it very easily could – which would not be good news for homebuilders and resellers of lumber, and even OSB [Oriented Strand Board, a type of plywood],” he said.

Those OSB prices are currently sitting at nearly $1,100 USD per thousand square feet on the market, Taylor said, in stark contrast to its position around the same time last year of about $800. Similarly, a typical framing package of lumber and OSB stood at a cost of around $17,500 USD when prices dropped last August; they’re currently perched at around $50,000, not far from their May 2021 peak of $70,000.

“We used to always say the price of lumber is irrelevant,” Taylor said, “but now, lumber prices are basically triple where they should be, and housing packages are about triple where they should be.”

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The see-saw trajectory of lumber futures continued in recent weeks, hitting $1,204.90 per 1,000 board feet on February 09 – its highest level for three weeks. That marked the sixth consecutive session that lumber futures had risen by $45, the exchange maximum, and a significant rebound from a January slump.

Construction price pressures have been particularly felt north of the border, with global construction and property consultancy firm Rider Levett Bucknall noting in January that several Canadian markets had some of the highest annual rates of growth in hard construction costs across North America.

Despite that barnstorming start to February, Taylor said that there were some signs that another slowdown was on the way, with supply chain snarls likely to impact housing starts in the near future.

“There are a few more cooling indications. Housing starts are probably going to be a little bit slower just because there’s a lack of material, a lack of builders and supply chain issues – so apparently modelling won’t be as robust as it was in the first quarter of last year,” he said.

“[In 2021] once the retail buyers started to realize lumber prices were crazy high in the second quarter, they stopped buying. I think that will happen this year, because people realize the same thing’s happening.”

Those supply chain issues remain profound, Taylor said, both as a result of the ongoing COVID-19 pandemic and difficult weather conditions along several key lumber routes.

Speaking with Bloomberg in recent weeks, Resolute Forest Products chief executive officer Remi Lalonde lamented a dearth of trucks and rail cars that he said was leading to long delays in sending lumber to buyers and spiking costs.

Read next: Canadian construction cost growth soars – report

“There are so few trucks available in the Lac. St Jean area right now that if somebody is buying from us we’ll say ‘I have to send it to you by rail because I have no trucks,’” he commented.

Still, Taylor said that big lumber construction projects were performing reasonably well, even if a slowdown was likely in smaller projects because of price constraints in that area.

“The big projects are doing well. Small projects are probably going to stall a little bit as the people see stickier price shock and move to spend their money somewhere else,” he said. “Otherwise in building materials, dealers seem to be slightly less robust than last year at this time – but inventories are about the same as last year.”

Those elevated prices for home framing packages were something to watch, Taylor said, compounding inflation pressures that are already hiking costs for other purchases essential to building and furnishing a new home.

“We’re going to be hitting higher than $60,000 [on home framing packages],” he said. “I’m not sure if we’ll go past $70,000, but obviously that’s a big bite with inflation and so forth affecting all other products in a home.

“Normally we would say if lumber goes up 5% it’s no big deal, but it’s up 200-300% – and everything else is expensive, whether it’s kitchen cabinets, or tiles, or doors.”

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