Lumber prices pushed the cost of building a home higher — a lot higher. Canadian Home Builders’ Association (CHBA) data shows members saw lumber costs soar. In fact, more than half of builders said lumber costs increased at least $30,000 in Q2 2021. Even though lumber prices have since crashed, don’t expect cheaper housing. Not in the near term, anyway.
Over Half of Canadian Home Builders Have Been Hit With At Least $30,000 In Extra Lumber Costs
Over half of Canadian home builders have seen big increases in the cost of building a new home. The CHBA found 52% of members have seen lumber push the cost of construction at least $30,000 higher in Q2 2021. More specifically, 30% have seen costs rise at least $40,000. Another 22% have seen an increase between $30,000 and $40,000. These are very large cost increases that ultimately get passed onto consumers.
How Much Did Lumber Prices Add To The Cost of A New Home In Canada?
The distribution of additional lumber cost per unit homebuilders experienced in the second quarter of 2021.
Source: CHBA; Better Dwelling.
Lumber prices soared all pandemic, but the previous survey highlights how extreme things are. In the Q1 2021 survey, only 12% had seen their cost of lumber rise more than $30,000 per home. Prices were surging all pandemic, but really only went parabolic in April and May. That would be just a month after peak home sales. It then fell, wiping out much of the premium people paid.
Most Canadian Home Builders Are Passing On The Costs To Consumers
How did home builders respond to higher lumber costs? Mostly by increasing the price consumers paid. The association found 84% have had to increase the cost of homes to help absorb the price increases. In many cases, the increase has been substantial. This is too large of a cost increase for builders to just ”absorb.”
How Did Canadian Home Builders Deal With Rising Lumber Costs?
The strategies Canadian home builders used to deal with the volatile price of lumber.
Source: CHBA; Better Dwelling.
Additionally, it appears some builders are resorting to hedging their material costs. About 72% of builders ordered/secured prices as far in advance as possible. Storing materials in advance (39% of builders), and obtaining price guarantees (39%) are popular strategies. Additionally, 38% of builders have resorted to substituting materials. That last point might have an interesting long-term impact on the cost of materials.
The second quarter was an interesting one for home builders and lumber. After record home sales in March, the cost of lumber soared in April to mid-May. After peaking in May, it began to crash spectacularly. Lumber prices are now around the same price as they were in 2018.
Don’t Expect The Drop In Lumber Prices To Show Up In Home Prices Soon
Don’t expect the rapid fall in lumber prices to turn into cheaper housing right away. Ironically hedging strategies such as pre-purchasing lumber locks in costs at higher rates. As a result, the discount isn’t likely to be transmitted to consumers very fast.
The same issue can be seen at your local big box store. Despite plummeting prices at the mill, they aren’t getting to retail consumers. Retailers are stuck unloading the inventory they already bought at a higher rate. Ditto with home builders.
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