While the housing market in Canada continues to thrive, there’s a new element contributing to its increasing prices: lumber. Since the beginning of the COVID-19 pandemic, lumber prices have soared due to low production levels and high levels of demand.
Why did the prices get so high?
Typically, the prices of wood products, such as lumber, waver frequently due to the constant fluctuation of home building and constant change in supply and demand. However, in the past year, prices of lumber have increased by 211% from 2019, which is a significant jump from the usual fluctuations.
There are many factors which have caused this increase in price. First, the COVID-19 outbreak has disrupted many supply chains in North America, which has cut down the construction of wood materials and the supply of lumber. The supply of lumber declined due to the closure of lumber mills in Canada, for health and safety concerns about the pandemic. The COVID-19 pandemic also led to an increase of people searching for bigger homes, however, during this time, construction had temporarily stopped, only to then increase again with easing restrictions. This sudden upward trend for bigger houses created a backlog for lumber demand as those involved in the construction process attempted to keep up with high demand. Additionally, the cost of transportation of wood products has increased during the pandemic and the price of lumber rose to compensate. Lastly, the rise in construction costs for building new homes has decreased the supply of new properties on the market. Lumber has made housing more expensive, and due to its high demand, shipment times have increased significantly, delaying the overall process of property development. The current residential real estate market is hot and hungry, looking for new properties to be sold, but with the shortage of lumber and the delays in construction, houses are being sold in fewer units at high prices in order to cover costs.
Interestingly enough, another factor that led to the decrease in lumber production is the overwhelmingly large amount of pine beetle infestations that have disrupted the British Columbian timer cut, and therefore increasing lumber costs. This has contributed significantly over the past decade to the interference in lumber production, however, it was the COVID-19 pandemic that primarily took the lumber prices to new heights. Another possible cause of the uptick in lumber prices during the pandemic comes from the increasing amount of do-it-yourself renovations, where homeowners who have been in lockdown have decided to give their house a remodeling, thus increasing not only the price, but also the demand for lumber.
Effects on real estate
The skyrocketing prices of lumber have recently started to shake the real estate industry, leading to corporations slowing down the construction process of up-and-coming real estate properties. Despite this decline in property construction, housing prices continue to surge through this lumber shortage. For first-time home buyers and those looking to purchase additional properties, there could very well be a limited amount of property options available for purchase and for development.
Recent decrease on prices
Fortunately, prices of lumber have started to reduce significantly in the past month due to the end of lockdowns and the implementation COVID-19 recovery strategies, however, they are still higher than pre-pandemic prices. It is estimated that prices will remain steady at this new amount in an attempt to accommodate for the decrease in lumber production, which has slowed tremendously throughout the coronavirus pandemic.
While the rising price of lumber has disrupted the housing market over the past year, with the gradual easing of restrictions and increasing vaccinations, many are speculating that lumber prices will continue to fall.
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