Lumber prices expected to level off in fall, home builders adjusting practices to cope with high costs, lack of product

KAMLOOPS — With the price of lumber at record highs — selling for four times its value from the beginning of the pandemic — home builders are in a difficult spot.

They are trying to keep up with exploding demand and low supply, but at what point does it stop being feasible for builders and buyers?

“We’re going to stay steady, but I think it’s going to have to level off. We can’t keep escalating on the price — on materials and house prices — because people can’t afford it,” said President of the Canadian Homebuilders’ Association Central Interior Jere Lorenz. “I think a little bump in interest rates, things will start to level off a bit. It won’t go down, it’ll just level off.”

While it seems like lumber prices will never cool, analysts say the market will eventually calm later this year with fewer supply chain issues.

“They don’t have the tendancy to last that long. This one’s a pretty long one actually, a pretty long peak,” said lumber analysts with Forest Economic Advisors Paul Jannke. “But we’re starting to see some declines in the futures markets right now. We haven’t seen it show up in the cash markets, but the futures peaked at over $1,700 [per thousand board feet] and they’re now down below $1,500, so we’re seeing some decline in the pricing there.”

Jannke doesn’t think prices will never return to pre-pandemic levels — at its low ranging from $450 to $600 per thousand board feet — but a cooling of the market, he says, should come late summer or early fall.

In the meantime, builders are starting to think about using alternative materials for future developments to save on costs.

“You can go to a concrete building, a steel building. There are other options you can go with,” said Lorenz. “Or we might look at a different type of product in terms of what we’re building. If sales do slow down, we can go to rental buildings.”

In addition to high material costs, there have been delays in receiving product thanks to the pandemic. Orchards Walk has future projects, including another 19 acres to build on going towards Dallas, and the plan is to start stockpiling materials, so builders can keep the momentum going.

“We’re going to pre-buy all our pipe because there’s a pipe shortage coming for underground services,” said Lorenz. “That’s another thing we’re looking at — pre-buying all our pipe and then having it ready to go as soon as we get approval from the city. These are challenges every day, what to do. Do you pre-buy or not pre-buy? Do you build now or do you wait?”

Lorenz knows commercial builders that are simply waiting the market out, seeing if lumber prices and other materials will drop.

If you ask the experts, the pricing pressures should ease by the end of the year, but builders and developers are preparing for the worse.