How lumber costs affect home prices

Lumber prices have fallen and a prominent Toronto-based real estate developer believes it can spur housing construction, albeit modestly.

However, in a city struggling with year-long supply and demand shortages, additional housing units, however meager, are welcome.

“As soon as we start to stabilize our costs, we then make a decision to release the next 30 or 40 homes of a phase,” said Scott McLellan, senior vice president of Plaza Corp. paragraph. , then you will see more supplies from the developers as they are comfortable. The way to stabilize costs is, with more sawmills reopening, construction inventories will go up and prices will go down.”

The cost of most building materials skyrocketed shortly after the pandemic broke out in March 2020 because, in addition to the halted production, there were complications in transportation. Steel mills are also temporarily offline, resulting in higher construction costs, but higher lumber costs.

“The lumber was $40,000 for a 3,000-square-foot house, and then it more than doubled to $90-100,000,” says McLellan. “The builders have fixed the quantity, which is passed on to the buyer. I don’t think home prices will go down — you can’t lower the price because no one can get a proper appraisal or mortgage. “

The continuous closing of wood and steel mills caused prices to rise, although nothing as high as before, however, prices have been gradually decreasing since the economy started to reopen. John Miolla, vice president of operations for Koler Builders, noted that the surge in home renovations, which began shortly after the pandemic hit, could contribute to exorbitant lumber prices, but he predicts prices will normal next year. In fact, prices fell 45% in June from a month earlier.

“Production is picking up and demand is falling a little bit,” he said. “I predict a return to pre-pandemic prices by the end of the year or possibly in 2022.”

Housing prices will certainly not fall just because the cost of raw materials is gradually decreasing. First of all, tightening market conditions are responsible for the significant increase in home prices, and beyond market fundamentals, namely population growth, prices will continue to climb, although expected There will be a lull this summer as people start to travel again and enjoy summer activities. But considering how lumber prices then rise, and then fall, McLellan believes the volatility will manifest in relatively static house prices.

“Lower lumber costs will keep house prices moderate; they are not going to increase that sharply,” he said. “Remember, other costs, such as labor, transportation and steel remain high.”