Why A Recent Canadian Lumber Tariff Will Increase the Price of Your New Construction Home
Everyone that is in the market for a new construction home may have noticed the steady increase of home pricing.
There are many reasons why new construction costs are rising including the lack of skilled contract labor, the cost of land, and the cost of goods to build the home.
COST OF LABOR: Our family has always done a lot of construction projects. In fact, before the market crash, our family had a home building business in Arizona and we were building out a master-planned community. Notice I said "before the crash." We weren't the only people to exit the construction industry when the crash happened. With so many people exiting the industry and fewer people entering into skilled labor, we are out a loss as a nation for tradesmen. And we are paying for it, because anyone that has to bid out any work will see the supply and demand principle first-hand. Not only is labor more expensive than it used to be, it's also harder to schedule out work.
COST OF LAND: Land prices are escalating - after all, land is a finite resource. And in many places in the Pacific Northwest, you are simply landlocked.
COST OF GOODS: I mentioned that our family does a lot of construction projects, and our most recent project is converting a horse barn into a brewery. It's been a fun process. And because of our family's projects, I spend a whole lot of time at Home Depot. And do you know what my metrics/my baseline for construction pricing is and how expensive a project will be? The cost of OSB plywood (it's a sheet good that is typically used to sheath walls and floors).
Over the last year, the cost of OSB has risen dramatically. Below is a chart for year over year pricing. There has been a 30% rise in pricing for the materials that you build your house with.
The long and short of it revolves around The North American Free Trade Agreement (NAFTA) and the Canadian Lumber Tariff.
Basically, the Canadian Lumber Tariff charges the United States 18% for softwood lumber. And what do you think houses are made up of? You got it - softwood lumber products.
This tariff created a flurry of activity in the lumber market, with buyers of softwood scurrying to get a hold of product before the tariff was enacted.
According to the experts at Random Lengths, "Robust sales fueled sharp price hikes in structural panels. OSB buyers showed an increased sense of urgency as order files extended, and prices in all producing regions posted double-digit increases. A scramble for coverage ensued in Southern Pine plywood amid depleted inventories and dwindling supplies of quicker shipments."
So, the good news for buyers already in contract to build a new construction - you are locked into your contract and the builder/developer will have smaller profit margins. Bad news for people new to the market or planning on a rehab for their home - it's going to cost you more.
If you want to get a pulse of the lumber market, I recommend checking out Random Lengths' website. It may help to prepare you for your next project.
Kristin Bushnell is Designated Broker of Bushnell Real Estate Solutions and Co-owner of Bushnell Craft Brewing Company in Redmond, WA. Check out my profile here.
If you are ever interested in chatting about real estate, contact me at kristinbushnell@gmail.com or call me at 425-559-1355. I'll buy you a beer (or non-alcoholic beverage, if you prefer!), and we can chat about real estate until your heart's content.
