Talk about sticker shock: lumber prices are up by 30% as the American lumber market buckles under the weight of the recently-imposed lumber tariff that imposed an average duty of 20.23% on Canadian lumber products in November 2017.
It wasn’t long before the market began to show the strain. As of May 11th, 2018, lumber prices have climbed to an average of $543 per thousand board feet. Futures contracts are also selling at $619, a 66% climb since last year. Altogether, these changes in the market have pushed up the cost of a single-family home— and by as much as $7000 per home, according to the NAHB.
The tariff’s effects may be particularly pronounced because of other conditions in the lumber market. Canadian lumber is also struggling with transportation bottlenecks and growing housing demand. Canadian rail delays have limited the amount of lumber that can even enter the U.S. Some producers report they are working to reduce the backlog and expect to have it cleared in the next several months.
For now, Bloomberg analysts Joshua Zaret and Evan Lee report “razor thin” lumber inventories and predict market conditions for the rest of the year will continue to keep prices high.
However, according to some analysts it is unlikely prices will stick around beyond 2019. Walter Zimmerman of the ICAP, the world’s largest interdealer broker, considers the lumber price spike an “unsustainable bubble.” As the market adjusts, the bubble will burst, leading to lower prices over the next few years.
Fortunately, lumber prices do not appear to have inhibited the housing market overall. Despite the constraints of the current lumber market, builder confidence remains at a high, according to the NAHB Housing Market Index, which placed it at a healthy rating of ‘70’ in May—20 points beyond the minimum for a favorable outlook.