If you are complaining about (buyers) or cheering for (sellers) rocketing prices of houses, you should know that one reason for price escalation is the cost of lumber. Lumber futures quadrupled since the last year and retail prices at least doubled, if not tripled. According to the Canadian Home Builders Association, the cost of lumber added about $30,000 in Canada and US$36,000 in the USA to the price of the new house! The difference is caused by us being the exporter. Canadian SPF (Spruce/Pine/Fir) is the lumber of choice for many single-family homebuilders in the U.S. The three main reasons are according to Josh Young’s article published in Seeking Alpha:
Underinvestments: According to an article by Baron’s, sawmills and other wood product manufacturers cut their production capacity by about 25% after the housing bust in 2008.
Supply issues: The supply chain for this type of lumber has been facing hurdles for years due to some structural reasons such as a US-based import tax on this lumber, as well as Canadian government-mandated cut limits. Most importantly, the mountain pine beetle has destroyed 18 million hectares of forest in British Columbia alone, killing 60 percent of its merchantable pine. So here is the answer to the questions from the header: OPEC and Mountain Pine Beetle are one of the three main reasons why is “their” commodity going up;-).
Suburbanization: COVID-19 has accelerated the suburbanization movement. Demand for individual space and record-low interest rates have contributed to an unexpected housing boom. But as a Realtor, I see from my anecdotal experience that people are parking their cash in something which they can label “hard asset” in case of “hard reset”.
Next week we will go back to the delayed vote on approval of the TSMV Three Sisters development project, stay tuned.