COVID-19 caused lumber prices to surge
The lumber industry, like any other that depends on a global supply chain, was throttled by the COVID-19 pandemic. Shutdowns of mills worldwide brought lumber production and distribution to a halt last year.
But demand didn’t dwindle, as many hunkered-down homeowners used the opportunity to renovate. Canadian provinces largely classified construction work as an essential service during the pandemic, although there were localized variations.
That put even more pressure on global lumber supplies, and production is only now reaching a point where the supply-demand imbalance is levelling out.
How much home can you afford?
Why prices are staying high
There are several reasons why lumber prices have yet to recede to pre-pandemic levels:
- Bottlenecks are easing now that saw mills are back in business, but labour shortages still prevent many of them from operating at full capacity.
- Prices being quoted to builders and renovators reflect markup of inventory carrying costs that dealers continue to pass along.
- Retailers stocked up on lumber while prices were high. Their supply is decreasing and demand is still strong, so they have no reason to base their prices on the lumber futures market.
All those factors should sort themselves out once supplies increase. When might that happen? The answer is literally shrouded in smoke.
Wildfires raging in British Columbia and the U.S. Pacific Northwest, two regions that have historically produced much of North America’s lumber, are creating a new supply challenge for producers of cut lumber.
“The wildfires burning in western Canada are significantly impacting the supply chain and our ability to transport product to market,” Stephen Mackie, executive vice president of North American operations for lumber giant Canfor, told The Wall Street Journal.
Another supply backlog could mean the return of inflated lumber prices.
Get the most out of your next reno
If you’re itching to make updates to your home, there are several things you can do to either bring down the cost or maximize your project’s value.
1. Choose your project wisely
If the goal of your reno is to add resale value to your home, Re/Max lists kitchen and bathroom updates, followed by paint, flooring and finished basements as the best fixes to invest in before listing.
If you’re planning on a major redo, be aware that higher lumber costs could raise the overall price tag and eat into your return on investment when you sell. So weigh your options before signing with a contractor.
2. Be exact
At a time of elevated lumber costs, you don’t want to purchase more wood than you need. Create a detailed plan that includes all of your project’s specifications. When it comes to the lumber, make accurate and thorough measurements to ensure little goes to waste.
3. Replace a wood-heavy project with a less expensive one
Summer might have you craving a deck, but do you really want to pay double the cost?
It might be worth considering a smaller, less wood-reliant project that will still add value and visual appeal to your home. The right paint job can result in higher offers from buyers, while even modest projects like a new backsplash or countertop can bring your kitchen to life.
4. Beware price-escalation clauses
Using a contractor might be necessary if you have a bigger project in mind (and if you live in one of Canada’s larger cities, good luck finding one who’s available). When you do manage to hire someone, read your contract closely and keep an eye out for something called a “price-escalation clause.”
If you sign off on a price-escalation clause, your builder can raise the price of your reno because of increased material costs. With the future of lumber prices uncertain, it might be hard to avoid such a clause, but you should be able to agree on a ceiling above which further increases would be unacceptable, and at what point the project can be cancelled.
Unlock your home equity
Find ways to fund your next project
Cutting back on your renovation budget may not be ideal. Luckily, there are ways to boost your cash flow that can make paying higher lumber prices less of a drag.
If you’re a homeowner and you haven’t taken advantage of today’s rock-bottom refinance rates, you could be leaving a lot of money on the table.
If you used a credit card (or two) to pay for any significant renos over the last year, you could be paying more in interest than is advisable. Consider taking out a debt consolidation loan to erase those high-interest debts. You’ll lose less of your money to interest and pay off your debts faster.
Maybe you’re still in need of a little extra cash for your next project. You could find it in the stock market. This popular app allows you to invest in a diversified portfolio using little more than the “spare change” left over from your everyday purchases.
A few of these strategies could be all you need to construct yourself a brand new budget.
You're 5 minutes away from the best mortgage
Searching for your perfect mortgage shouldn’t be hard. Homewise is an online brokerage that will negotiate on your behalf with more than 30 big banks and other lenders, completely free, and it only takes five minutes to apply.
If you're in the market for a new mortgage, or if you're looking to refinance before interest rates rise again, go to Homewise now and answer a few simple questions to get started.