Editor’s Note: For more on this topic, see this episode of the CFI Podcast with Keta Kosman, owner of Madison’s Lumber Reporter.
If there has ever been an incomprehensible year for forestry and sawmilling, it was 2020. Macroeconomic conditions in Canada and the United States have not been easier to decipher. However, one sector that clearly performed well was the housing sector: the activity of building and selling housing across the continent has reached heated levels. Indeed, according to the latest data on employment in the United States, job gains in the construction sector fully offset all other job losses.
The softwood lumber and panel price pendulum has swung sharply, with declines caused largely by confusion around lockdowns, and then by the institution of sanitary measures – especially social distancing – at the scene. work to prevent transmission of COVID-19.
Were it not for these unfortunate circumstances, indications at the start of 2020 pointed to a good year for housing starts in the United States, and therefore for lumber sales. Data from the US census – as well as the Canadian census – released in February of last year showed a very strong prognosis for homebuilding and construction activity.
Sawmills and lumber dealers across the continent were poised for a year of high volume sales with the high prices that come with it. But when the pandemic hit North America in March, the dynamics of lumber manufacturing and sales plummeted, dragging prices with it.
However, demand for wood supplies for construction projects remained and declined in late spring and early summer. The resulting sustained rush to buy lumber caught sawmills and wholesalers by surprise, pushing prices to record highs. See Figure 1 to see how the prices in December 2020 for the Western benchmark SPF KD 2 × 4 # 2 & BTr compare to prices in previous years.
In the summer of 2020, the extremely hot housing market surprised many people, as the demand for housing increased sharply and the supply consequently decreased.
As a result, house prices have increased markedly. Likewise, the price of building materials – especially lumber – has also increased. Expressions of shock reverberated throughout the value chain as refills, stock wholesalers, home builders and dealers were caught with fairly meager stocks of solid lumber.
Despite these unexpected circumstances, the higher prices were paid because the contractors had construction projects underway and needed lumber to complete them. Thus, the end user – the home buyer – paid the additional cost (approximately $ 15,000) in the sale price of the new home.
As 2020 waned and sawmills in Canada and parts of the United States entered annual cutbacks and seasonal breaks, there was no real downtime for lumber sellers and resellers. . It is completely unprecedented that home sales and construction are so strong in November and December. This left more than a few operators caught off guard with not enough lumber on hand to complete current projects. Calls for orders to sawmills and wholesalers continued during the holiday weeks.
Indeed, this carried over to the first week of January, with prices rising more and more. “Where is it going to end?” The players asked. They desperately wanted to know what the impending floor price would be and when it would happen. At the time, Madison’s Lumber Reporter suspected – which turned out to be true – that this price hike was the result of a delay in sales and deliveries left by the holiday weeks.
At the time of writing the second full working week in January, prices were flat and in some cases even falling. Loggers across the continent have breathed a sigh of relief that sanity has returned to the softwood lumber market. See Figure 2 for how to compare lumber and softwood panel prices in January 2021 compared to previous weeks.
Outlook for 2021
What does this mean for 2021? It’s hard to say, but we know some important market conditions for the supply-demand balance.
December’s US home sales and price data was even better than it had been in the summer, and US builders struggled to find workers and new land for construction projects . Many important materials like windows, roof trusses, etc. were also difficult to find.
Meanwhile, log supplies to sawmills across North America were plump to sturdy, but transportation was very difficult, especially on the rails. Major suppliers of logging and trucking equipment said they were booked for 24 months.
Considering all of this, it is likely that as of this writing, from mid-January to the end of 2021, the prices of softwood lumber and panel products will not drop significantly. The continued strong demand momentum for new construction, as well as renovation, will translate into continued strong lumber sales volumes through the end of the year, if not longer. See Figure 3 to compare benchmark lumber and dimensional softwood panel prices to January 2021 to 2020 prices.
The importance of housing starts in the United States – particularly single-family housing starts – cannot be overstated enough for sawmills: 65% of Canadian softwood lumber sales go to the United States , mainly for the construction of new houses. Another 10 percent is sold in Canada and six percent in Japan. Lumber purchases in Japan are 100% premium / appearance lumber, or higher grade, not the standard grade, or # 2 & Btr, used in North America.
Over the past two years, a close correlation has emerged between these benchmark 2 × 4 lumber prices and US housing starts (total and single-family). See Figure 4 to see how total and single-family housing starts in the United States compare to benchmark softwood lumber and panel prices in 2018-2021.
New house construction
There are strong fundamental drivers of North American softwood lumber demand, the most important of which is new home construction.
At the time of writing, annual data for 2020 had been released. According to these data, in Canada, national home sales increased seven percent month over month in December 2020. Real activity (not seasonally adjusted) increased 47 percent year over year. other, and the number of newly listed properties has increased. 3.4% from November to December. The MLS Home Price Index increased 1.5% in December from November and 13% in 2020 from 2019. The actual national average selling price (not seasonally adjusted) posted a gain of 17% in December compared to the previous year. .
Meanwhile, in the United States, the median home selling price rose 14% in January 2021 from the previous year, to reach US $ 320,025. Pending home sales rose 35% year-over-year, while active listings fell 33% in January from the same month in 2020 to a new all-time low, indicating that the he supply of houses for sale is very limited. Of the homes that were contracted, 38 percent had an accepted offer within the first two weeks on the market, well above the rate of 27 percent during the same period there was. a year. The average sale-to-list price ratio, which measures how well homes are selling near their asking prices, was 1.5% higher than a year ago. Finally, for the week ending January 10, 2021, the seasonally adjusted Redfin buyer demand index increased by 40% compared to January and February 2020.
Looking at the long-term housing market in the United States, there are a few key statistics to note. Millennials made up the largest share of home buyers in 2020, at 38%. Meanwhile, the median household income of first-time buyers in 2020 was US $ 80,000, compared to US $ 68,703 in 2019. The median household income of regular buyers was US $ 106,700.
Overall, in 2021, the chief economist of the National Association of Realtors of the United States, Lawrence Yun, predicts that new home sales will increase by 21% and existing home sales will increase by 9%. %. He predicts that home prices will rise three percent this year. See Figure 5 to compare current benchmark softwood lumber prices to recent and historic highs, as well as recent lows.
Based on continued high lumber sales, but above all stable prices in mid-January, it appears that the balance between supply and demand for solid timber is balancing out. Regarding the potential rise in timber prices, look for log supply issues. As long as sawmills have ample access to the raw material, there should be no shock with sudden and sharp increases in lumber prices.
Keta Kosman owns Madison Wood Journalist. Founded in 1952, Madison’s Lumber Reporter is your premier source for North American softwood lumber information, pricing, industry information, and industry contacts. The weekly Madison’s Lumber Reporter publishes current information on wholesale prices for lumber and structural panels in Canada and the United States 50 weeks a year and also provides access to historical prices.