Don’t panic.
It was good advice on the cover of The Hitchhiker’s Guide to the Galaxy and it’s probably good advice still on the cover of The Housebuyer’s Guide to Calgary. (As far as I know, there are no Vogon ships waiting to vaporize the city.)
Thanks largely to forest fires, the price of lumber is up. The price of houses might go up, but there’s a lot more to houses than wood. There’s also a lot more to house prices.
Craig Alexander, senior economist at TD Bank financial group, says lumber prices have definitely increased in the last few weeks.
“But there is a lot more to the cost of a home than just the wood that goes into it,” he says.
The resulting price increase would be relatively modest. “Will it deter someone from buying their home? I don’t think so,” said Alexander.
The weekly commodity report on lumber for Friday, September 5, showed $365 US for 1,000 board feet of spruce-fir-pine two-by-fours. It was $258 at the end of July, notching a rise of more than $100 in five weeks.
“Prices are reacting to a natural disaster, so we’re not sure how long it will continue,” he says. There is anecdotal talk of large U.S. government orders, in addition to the fallout from forest fires in B.C.
Dave James, manager of Morris Lumber 2002 Ltd., says prices are at unprecedented levels, up 30 to 40 per cent on dimensional lumber and 60 per cent on plywood.
Richard Corriveau, senior market analyst for the CMHC in Calgary, says there is some increase in lumber prices, especially for oriented strand board (OSB). The United States has a huge demand for OSB right now.
Ron Tillapaugh, a partner at Double R Building Products Ltd., agrees the biggest problem has been OSB. The forest fires are driving the price higher, along with U.S. demand that has been high for a couple of quarters.
In the last month or two, the cost of framing material has added $6,000 to $8,000 to the cost of a house in Calgary.
If the cost of a framing package goes from $7,000 to $13,000, it’s about five per cent of the value of a $250,000 house. But prices of drywall are expected to rise 12 per cent and insulation 10 per cent at the end of October.
But he also stressed lumber and plywood are commodities, subject to market corrections. The current run on OSB started in January, making this the longest sustained increase Tillapaugh can remember. Its last peak ran for seven months in 1999.
If U.S. demand drops, Canada will have excess supply and prices will go back down, he said.
The Canada Mortgage and Housing Corp. reported last week that new housing starts in Calgary slumped in August after an impressive July.
Calgary and area builders started 1,001 new housing units in August, down 42 per cent from the same month a year earlier. Single-family homes were 765 of those units, 23-per-cent fewer than in 2002.
The numbers appear artificially weak, said Corriveau, and don’t show a sudden crunch in the housing market.
“Rather, the drop is a function of last year’s strong activity, as August was by far the best monthly performance of 2002,” he said.
So far this year, 5,872 single-family homes have begun construction, eight per cent below the corresponding period one year earlier.
Multi-family starts also declined 67 per cent, to 236 units. For the first eight months, 3,725 multi-family units have been started in the Calgary CMA, 21 per cent more than in 2002.
