Talking more about your mortgage questions!
This week I talk about what’s going on in the lumber and building materials space and how that’s impacting home prices.
COVID-19 has impacted many industries, but one that I’ve found is missed is the cost of building materials, such as softwood lumber, and how that impacts the price of homes. Here, I offer my take on how lumber costs are impacting home prices.
Below, we talk a bit more about your weekly mortgage questions!
Don’t feel like watching? Find the full transcript below!
What do toilet paper, 2x4s and home prices all have in common?
Chris: [00:00:00] Today, I want to talk to you about 2x4s, toilet paper and home prices and figure out what these three things all have in common right now.
Chris: [00:00:08] So what do these three things have in common? They’re all made out of wood. And if you shopped for toilet paper or lumber or even started to build your own home, if you’ve been that fortunate, you know that the cost of all of these items is going up.
Chris: [00:00:23] So let’s talk about exactly why that is and what is happening in the background to drive prices up. I think this is a really important story as we head into the end of 2020 and into 2021.
It’s all about Supply and Demand
Chris: [00:00:35] So this is really a story about a mismatch of supply and demand. Early on, when the pandemic hit, lumber producers decided to cut production. In fact, some of the major mills in Quebec stopped production altogether, anticipating a major, major slowdown in demand for wood, so thereby reducing the supply of lumber and the market to make sure that the prices stayed stable. Well, what’s happened in the meantime totally surprised everybody. And there has been an increased demand like we’ve never seen for lumber, why Canadians are staying home. They are undertaking a heroic effort to improve homes. Renovations are very popular.
Chris: [00:01:23] And in the meantime, there’s still demand home builders to keep on building new homes. So all of this new demand was not met by the supply in the marketplace. And that, of course, has driven up prices.
What was the impact on the price of wood?
Chris: [00:01:37] So by how much did the price of wood actually go up? Back in March, the composite price of wood per board foot, they call it a thousand board feet of wood is the composite price was just under $400. That was back in March, pre-pandemic, August, September. That composite price reached $900 per board foot. So that translates into a 125% increase in the price of wood, which is astronomical and has an impact on everything from your toilet paper to your tissue box to your 2×4.
Chris: [00:02:14] So what impact does this elevated price of softwood lumber have for real Canadians? Well, for one, if you’re building a new home, it’s estimated that on average it will cost you an additional ten thousand dollars for the price of wood.
Chris: [00:02:30] But it’s not just anybody building their own home. Think about the condo developers as well. They have to sell their units based on certain construction prices that they assume those margins are very thin. Now, with the cost of the increase of wood, that margin got thinner. And it’s so bad that some developers are even having to cancel their projects, which is terrible for buyers.
It’s not all bad news!
Chris: [00:02:53] But there is some good news. The Canadian Forest Industries is reporting that in October, the composite price of wood is dropping from that 900 dollar high to about $760. And this is due, of course, to an increase in supply. So the mills are producing more wood. However, they are expecting that come January 2021, this drive for a home renovation and new construction and the TPE hoarding that’s happening is going to drive up the price again. So this may very well be the new normal to have this price hovering around $900 as the composite price for wood. And that, of course, makes everything much, much more expensive.
Chris: [00:03:41] Listen, my name is Chris Molder. I’m a Toronto mortgage broker and I love talking about all things Canadian economics. I hope you enjoyed this video. If you have any specific questions, feel free to drop me a direct message. You can find me at Tridac Mortgage on anything – LinkedIn, Google, Facebook, Twitter. You’ll find me there regularly. I hope you enjoyed the video and this conversation about wood toilet paper. Thanks for joining us. Bye for now.
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