Whats Next with Lumber Tariffs



If you’re a bit of a news hound, you’re hearing quite a bit about U.S. tariffs on Chinese manufactured goods. But what about the tariff on Canadian lumber? Back in May of this year, President Trump announced lifting aluminum and steel tariffs on Canada and Mexico. But he said nothing about lifting the Canadian lumber tariffs. According to a May statement from National Association of Homebuilders, the tariffs are still adding an average of $9,000 for a new single-family home. Is that accurate? Other sources say it amounts to less than $4,000.

young man in lumber yard

That $9,000 is in line with what was reported here at RealtyBizNews more than a year ago. However, there are now reports that wild fires and other supply-chain issues have driven up prices a total of 40%. This is all happening as the supply of new homes remains critically low. It is not a small impact to the housing industry. Canadian softwoods are used for framing homes and for finishing interior spaces. This includes trim around windows and doors.

Currently, there is no known plan to remove the Canada lumber tariff. What’s amazingly is that lumber prices are falling because of weak demand in new home construction. The primary weakness is being blamed on land and labor shortages along with permitting costs and delays rather than lumber prices. Earlier this month, the Commerce Department reported the pace of U.S. home construction fell a dramatic 4% in July. To date, housing starts have declined 3.1% for the year.

This week, Home Depot lowered its profit outlook for the year based on tariffs and lumber prices. However, Home Depot states that lower lumber costs are the real culprit leading to lower profits. Still, the company is bracing for further potential impact of tariffs on its customers.

It’s all a bit confusing…

The tariff on Canada lumber doesn’t ultimately seem to be a contributing factor to the declining new home construction. The numbers are a little old but use of domestic lumber has barely budgeted from 67% in 2016 to 69% in 2018 (tariffs took effect in 2017). It appears that other overseas providers are filling the gap including Sweden, Germany, Russia, and Norway.

The dispute about low Canada lumber prices has been going on for decades. It was in April 2017 that things really started heating up again and new tariffs were announced. Today, we see there was only a short term jump in lumber prices with prices again declining in 2019.

A reasonable conclusion seems to be that the tariffs imposed on Canadian lumber are just one more regulation impacting new home construction. The bigger impacts are coming from land shortages, zoning and permitting regulations, and lack of low cost labor. No resolution seems to be in sight or even in work to boost new home construction. Please share your thoughts about lumber tariffs and other causes for new home construction lagging demand. Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to askbrian@realtybiznews.com.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.

Comments

  1. Great article. I agree with your points on why lumber prices are falling.
    I would argue that you have left out one of the biggest factors that
    has contributed to lumber demand softening.
    The global move to cities phenom (which has been happening for awhile)
    A growing majority of people do NOT want to live in a single family suburban house.
    They want to live in a city. This pattern doesn’t appear to be a temporary phenom.
    Less demand for single family housing translates into less demand for lumber.
    Population increases are masking this factor but the long term reality is the per person
    usage of lumber for building suburban single family homes will continue to decrease.

    • Brian Kline says

      Stephen,
      Thanks you for your insightful comment. While I see your observation is at a global level of preferring city living, I’m not so sure it is as strong of a trend in the U.S. However, lumber prices are certainly influenced by the global economy. Thank you for your value added comment.
      Brian Kline

    • Mike Logelin says

      I think there are plenty of young people that would love to buy homes in suburbia. Many young couples are unable to find affordable first time homes and are racked with student loan debt.