BMO Sees Soaring Lumber Prices Crashing Soon, Which May Lower New Home Costs

North American lumber prices are soaring, sending homebuilding costs higher with it. The good news is, relief may be just around the corner. BMO Capital Markets updated its Benchmark Western Spruce-Pine-Fir (SPF) lumber forecast for April. The bank sees lumber prices dropping in the second half of the year. By 2022, they expect lumber prices to be at more typical levels. This should help alleviate some of the rising input costs driving new home prices higher.

Lumber Prices Rise Over 240%

Lumber prices are rising at an incredibly fast rate, hitting new records. The price of SPF lumber reached US$1,083/mbf this week, up 241.6% from a year ago. This is around twice the average price in 2020, which was the previous lumber price record. And you thought homes were a good investment? You would have made way more just hoarding wood. 

The rise is partially due to strong new home demand, and the pandemic’s slowdown of industry. BMO sees these trends exacerbated by dealers not wanting to stock up at elevated prices. This would contribute to pushing home prices higher, as dealers avoid becoming bag-holders. 

Home Builders Estimate This Can Add US$24,300 In Costs

The great lumber squeeze has added thousands to new home prices. The National Association of Homebuilders (NAHB) provided some numbers when lumber hit US$975/mbf. The organization estimates the price rise adds US$24,386 to the cost of a single-family home. Multi-family units are a little better at US$8,998/mbf, but still very high. It’s a big bump for home building costs, but the good news is BMO sees these prices falling soon.

Benchmark Western Spruce-Pine-Fir (SPF) Prices

Source: BMO; Haver Analytics; Better Dwelling.

Lumber Prices May Crash Soon

BMO is forecasting SPF lumber prices are going to fall over the next year, due in part to affordability. The bank warns, “affordability concerns could intensify should mortgage rates march higher.” Adding, “household wallets are not unlimited and at some point, demand could shrink amid a reluctance to shell out extra dough for the same studs and sheathing.” 

The bank sees a sharp correction in prices as a result of production slowing, and rates tightening. SPF is forecast to fall to an average of US$415/mbf in 2022, down over 61.8% from this week. The bank expects prices to start falling in the second half of the year, straight through to 2022. “When the lumber market corrects it can do so in a hurry.” 

If the BMO forecast proves true, home builders may experience a little relief from high input costs. This will either make home prices more affordable or building homes more profitable. It’s up to consumer demand and competition to see whether prices need to adjust to expectations.

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20 Comments

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  • Doug 3 years ago

    Goddam, it wouldn’t be a moment too soon. Leaving the hardware store feels like walking away from the Apple store on the wallet. I do feel like prices may be a little more than 240% in BC. IIRC, I’m paying more than 3x prices.

  • Whiskey Foxtrot 3 years ago

    Any stats on how much lumber prices are in Canada, and what it adds to the cost of a home?

  • Marcel Forster 3 years ago

    A Greater Montreal developer is currently not delivering homes, until they top up buildings costs. I’m not sure what new home contracts are, but I imagine builders don’t eat very many costs.

  • JEFF13 3 years ago

    It remains to be seen. Lots of lumber come from BC and log supply has become a big challenge. Even before the pandemic, several sawmills closed, not because they were not profitable, but they just didn’t not have access to enough resources.
    https://www.cbc.ca/news/canada/british-columbia/foretsry-contracters-losing-work-mill-closures-1.5221008

    • Rudy 3 years ago

      I agree there’s not much lumber, but prices are being squeezed because of suppliers. Our wood guy says the dealer isn’t ordering much at these prices, because it doesn’t make sense.

      Framing costs in 2018 were crazy. Supplies were also short. This is just absurd.

  • Herry 3 years ago

    Right, what does a bankster know about ripping off Canadians ?

  • Rudy 3 years ago

    Glad to see more builder discussion on here. Good job.

    How this impacts home prices depends on when it was cost, and whether the developer adds margins pre or post. If they add it post, you’re also paying up to 30% (including cost overage buffer) on top of the wood price increase.

    Some developers don’t charge a premium if they think it’s short-term. Some do.

  • The Ghost of Rodney Dangerfield 3 years ago

    It’s like I told my wife, ‘Gimme a break! Wood can’t stay up forever!’ Boy, I tell ya. I don’t get no respect.

  • Tom Wolfe 3 years ago

    $30K increase in lumber? The problem is the other $970K.

  • straw walker 3 years ago

    Its not just lumber but base metal prices are way up…Copper is through the roof. But also soft commodities , grain prices,
    There is one singular reason , the devaluation of western currencies because over massive amounts of over printing, which cause huge shift in inflation..
    This leads to assets , real estate and stocks to continue to move higher, and government bond to move lower..The end of bonds.
    The real metre for currency inflation is the Bitcoin metre… when it hits $100,000, we will be approaching a full scale economic, collapse as prices will escalate beyond reach ..

    • Garry 3 years ago

      Noway stores will reduce the price of wood. It will be more profits instead since most lost money during government lock downs during the pandemic. Better get used to it. Everything went up, including hydro etc. Everything but wages to keep up.

  • RWZM 3 years ago

    Lumber is not really a major factor.

    • Yan 3 years ago

      Just the increase is 5% of the price of a typical house in Canada.

  • Arme 3 years ago

    Very few products come down in price, once they go up they very seldom come crashing back down. It just becomes pure profit for the food chain and if you want a home built the prices are not coming down very much, if at all.

    • Yan 3 years ago

      You just looked a chart that shows lumber prices crashing 60% in 2018 and concluded that doesn’t happen.

  • Rene Albert 3 years ago

    About as much chance of lumber market prices crashing as Covid19 disappearing…

  • Tr33plant3er 3 years ago

    I work in forestry and because of the waste I see every day I refuse to pay for wood, so I mill my own lumber or am opportunistic and grab free scraps or offcuts destined for the dump whenever I can. You’d all be furious if you see how much good wood the industry wastes. There may be a lumber crash coming but the general long term trend (absent of demand crashes) is going to continue up until second growth comes online (which btw, is generally wood of inferior quality).

    Expect to pay exorbitantly more for quality lumber in the long term. We’re rapidly running out of forests with easy access to mills. That is the crux of the long term problem. Decades of over harvesting and wasteful practices has led to this.

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