Lumber prices are rallying again, scaling toward their highest level in seven months.- Joe Sanderson, CEO of Domain Timber Advisors, says three trends are driving the surge.
- He said lumber's price will hover upwards of $1,000 per thousand board feet through the second quarter.
Lumber prices are rallying again and are scaling above seven-month highs as three key trends drive the red-hot commodity upward, according to Joe Sanderson of Domain Timber Advisors.
Sanderson, CEO and managing partner of a firm that specializes in timberland investment, said lumber's price will hover above $1,000 per thousand board feet through the second quarter of the year.
While he thinks the price of the commodity should hit an equilibrium around $500-$600 per thousand board feet barring any supply and demand constraints, he identified three key trends that are contributing to lumber's upward pricing pressure.
1. Millenials are reaching homebuying age
An aging millennial population that has steadily graduated from student debt to mortgage debt is putting pressure on housing demand. This generation is now in their early 30s -- roughly the age range when their parents purchased their first homes -- and is looking to do the same.
And while sky-high inflation and massive home price appreciation is hurting their buying power, they are still making inroads into the country's housing market. The result has been a nearly unprecedented real estate boom, aided by an economy that allows most of them to work anywhere, as Insider previously reported.
"Demand for housing is extremely strong, Sanderson told Insider, citing the 1.7 million new housing starts seen in December 2021. "So, that, along with lower interest rates is going to see lumber prices fairly high."
Last year's data from the National Association of Realtors support this: millennials comprised 37%, the largest share, of homebuyers.
2. A rise in Canadian lumber tariffs
In November 2021, the US Commerce Department confirmed it will impose a nearly 18% tariff on imports of Canadian softwood lumber producers in 2022. That is more than twice the 8.99% rate during the Trump administration.
The Biden administration initially unveiled the plan in May 2021, causing some lumber yards to stock up and increase their orders before the tariffs kicked in.
"That is a substantial increase," Sanderson said. "Canadian lumber has become very expensive again, which is going drive up US pricing."
Some experts have claimed the move will make housing less affordable for Americans and hinder the economic recovery. Half of the major producers of lumber in North America are located in British Columbia, and the US imports roughly 50% of their output.
3. Increased cost of raw goods
Further up the lumber supply chain, the price of timber, the wood that is processed to become lumber - has been increasing from 10%-20%, Sanderson said. This is causing a supply-demand imbalance, he added.
"We are seeing some very strong timber pricing right now and we expect that to stay strong for the next three to four years," he told Insider. "As the supply of timber becomes more constrained, the demand for lumber increases."
Other factors
Outside of the three key factors Sanderson listed, the December floods in British Columbia, where heavy rainfall prompted a temporary stoppage of lumber exports, have also been putting pressure on lumber prices. Canada's westernmost province exports about 50% of its softwood lumber production to the US, according to the BC Lumber Trade Council.