Long a boring commodity, B.C. lumber prices soar to stratospheric high

Long a boring commodity, B.C. lumber prices soar to stratospheric high

Prices have more than tripled in the last year, hitting US$1,330 per 1,000 board feet

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The sticker shock of lumber prices that have more than tripled in the last year has made Cameron Holden’s job of managing client expectations as a renovation contractor.

“(Customers) get a little overwhelmed when it comes to my traditional pricing sheet (which) has … $5 for a piece of lumber, now that piece of lumber is like $12,” said Holden, owner of Vancouver-based The Anything Pros. “So you’re juggling people’s emotions on their budget along with the supply of wood, if there is any in.”

That isn’t always guaranteed either.

However, the combination of a boom in U.S. housing construction with a COVID-19-inspired explosion in home renovations that lumber producers still haven’t caught up with have pushed lumber prices to stratospheric highs, said Keta Kosman, publisher of the industry journal Madison’s Lumber Reporter.

Madison’s last week quoted a price of US$1,330 for 1,000 board feet of Western Spruce, Pine or Fir two-by-fours, a standard measure in the industry, which would have cost US$336 a year ago.

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“For the past 15 years or whatever, lumber has not been sexy and now, suddenly, it’s a hot and really cool thing,” Kosman said. “An economist sent me lumber prices in Bitcoin, lumber prices in oil.”

That is an illustration that lumber prices still don’t look high, compared with other commodities, but it’s still “astonishing when the correction sort of seems to all happen at the same time,” Kosman said.

And it’s tough for contractors such as Holden to explain, he said, when the price of lumber to frame a small patio soars to $6,000 from the $3,800 initially quoted.

“So, the uncertainty of how much the price of lumber (changes) from one day to the next is so frustrating, because you have to communicate that with your clients,” Holden said.

Those wild price swings are magnified for homebuilders, said Ron Rapp, CEO of the Homebuilders Association Vancouver, and not just for 2X4s.

“It pretty much goes across the board for dimensional lumber, like two-by-fours, two-by-sixes … as well as sheet goods such as (oriented-strand board) and plywood,” Rapp said.

For a typical 2,200-square-foot, three bedroom, two storey home, those higher prices add “well over $30,000 to the lumber-package costs, over and above what it was at the beginning of 2020.”

How the skyrocketing prices affect the plans of builders depends on where they’re in the cycle for their projects, Rapp said. Builders who haven’t pre-sold homes yet scramble to adjust prices to cover the cost. For those who are midway through construction on homes they’ve already sold, the rising prices squeeze their profit margins.

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For the most part, Rapp said demand for housing and renovations has been so strong that higher lumber prices have “not yet become cost-prohibitive.”

In the bigger picture, however, the graphically oriented news outlet Visual Capitalist used lumber future prices, which reflect speculative bets on where lumber prices will go, to illustrate the impact.

It estimated that US$50,000 worth of lumber, based on a May futures-contract price of US$1,635 per thousand board feet, could build 2.1 standard, 2,301-sq.-ft. single family homes. A year ago, at a futures-contract price of US$343, a builder could buy enough lumber to build 10.5 homes with that US$50,000, according to the Visual Capitalist infographic published May 8.

Kosman said that it’s unlikely that contract prices for lumber futures will remain as high as US$1,635 but cash prices on delivery likely will remain at stratospheric levels at least until the rest of the year.

U.S. housing starts, the primary driver of North American demand for lumber, by the end of 2019 showed signs of recovering from a prolonged downturn after the real estate crash of the mid 2000s, Kosman said.

American millennials, those born between 1981 and ’96, are the biggest group in the population that will drive housing demand in the coming decades, Kosman said, and they outnumber their baby-boomer parents.

“So there is like a 15-year window of increased housing demand, just from this generation,” Kosman said. “They don’t necessarily buy single-family homes,” preferring more urban-oriented housing forms.

“Five-storey (apartment buildings) don’t use as much wood as a single-family house, but (they) still use wood, so there’s no question that prices would go up anyway.”

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