Why are Lumber Prices Soaring??

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The average cost of a new build home in Canada has jumped by $30,000 in the last year. The price of lumber has increased by a staggering 180 percent, according to The National Association of Home Builders. What does this mean? To start with, that deck you were going to build is now going to cost you as much as your child’s post-secondary education….well, maybe that’s stretching it just a tad…

What’s on everyone’s mind though, would be the reason for the mega-jump in prices. Is it all Covid-19 related? Are there other factors involved? That’s a starting point, but the answer runs much deeper than that.

Mill Closures

Lumber use has steadily gained traction in the last few years, while still being nowhere near the output capacity back in 2005 before the crash of the economy. Lumber mills would have no trouble keeping up to capacity in normal times, but the pandemic has caused closures of the mills. Even when opening back up they have had to limit the number of staff due to safe social distancing measures. As a result, they have fallen severely behind on the capacity scale.

To add to this, with a large part of the population being stuck at home, many have endeavored to take on those projects that seemingly forever get put aside. This has raised the demand for lumber, which no one really expected. The housing market has also heated up during the pandemic due to buyer friendly interest rate

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Beetles From Hell

Another problem that may have added to the increasing lumber prices is the mountain pine beetle. A massive outbreak has resulted in millions of hectares of forest decimated in the last 15 years. We can expect this to continue to be a problem for producers as winters get milder.

Extreme Volatility

Lastly, since lumber is a commodity and inventories are typically bought weeks in advance, panic buying has caused great volatility in the market as companies try to safeguard their supplies. When this happens, speculators get involved and can have a large influence on market prices.

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Is the End in Sight?

This depends on a number of factors. Ongoing lockdowns and low staff count will continue to hamper producers. Some estimates are that by the end of 2021 the volatility should settle down as producers catch up. This would hopefully mean that by the spring building season next year we start seeing some price relief.

Hopefully that deck can make it one more season……

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