Lumber Pricing and how it may Affect your Investment
Lumber is an essential building material that dictates the price of housing in a way. The price of lumber has been on the increase for a few years now and it was later accompanied by shortage supply at the beginning of global lockdown engendered by the global pandemic in 2020. The effect of the price increase has been felt in the real estate sector as the prices of construction and homes have been on the increase. On the supply end, the gradual return to normal economic activities has seen an increase in the production of lumber flood the market. However, it is still yet to meet the already increased demand since the global lockdown.
How Does Lumber Pricing Work?
Lumber pricing works the way any other market commodity works. The forces of demand and supply dictate the price of lumber. The demand for lumber has witnessed an astronomic increase in the last six months which has inevitably driven up the prices almost at 170%. The lockdown forced people to work from home which afforded them time to take care of their home. Most people started to take on DIY projects of remodeling and home expansion which inevitably drove up the demand for lumber. During the lockdown, it was reported that home renovations increased by 40% in Canada during the lockdown up until late 2020. While there seems to be no problem with the demand side, the supply end has witnessed a bit of up and down, especially with the covid-19 pandemic. Health precaution imposed by the government meant that most of the sawmills had to close down or cut on production which caused a bit of unbalance between demand and supply. This also has had its fair share on the price increase of lumber.
What Does The High Lumber Pricing Hold For Your Real Estate Investment?
There have been a lot of questions and uncertainty on the implications of the increased lumber prices in the real estate sector. For house owners who either want to increase the taste of their home by remodeling or home expansion, the short supply and increase in the high price of lumber may put pay or delay your project. The Natural Resource Canada conducted a survey in which it was revealed that a square foot of lumber that cost $11 in March 2020 now goes for $35 in March 2021. When you consider the cost of transportation and the cost of labour if it is not a DIY project, then you may want to hold off on the remodeling. In research by the Canadian Home Builders’ Association, a renovation could cost you an additional $30,000 due to the high prices of lumber. For potential home buyers, it is not good news also. If a homeowner spends a considerable amount due to high lumber prices to renovate and remodel the property in order to increase the real estate value, it is only natural to want to recoup the money from the value placed on the property. This means that the value placed on properties will further increase. The high prices of lumber have made investing in real estate a tricky business.
How To Cushion The Investment On Your Home?
The situation of the real estate market may require that you engage the services of a professional financial advisor that will guide you on how to go about your real estate investment. For homeowners who want to take on a project of home expansion or renovation, you can get a home equity line of credit to help you achieve the desired result. You do not have to worry about the interest rate as a home equity line of credit offers a lower rate compared to other types of loan. It is calculated by subtracting your current mortgage liability from the market value of your home. You can also secure a second mortgage and use your home as collateral to access funds for your home renovation and expansion. This is also available to potential home buyers as you can use the home equity line of credit of your existing property to finance the purchase of another property.
Conclusion
Experts are keenly watching the lumber market to make an accurate prediction on the future price of lumber. The full resumption of sawmills is a promising sign that supply will be able to level the high demand and mitigate the effect of the high prices of lumber. While prices may not drop drastically anytime soon, stakeholders are drawing encouragement from the fact that we are in a period where lumber dealers reduce their buying to take stock of their lumber purchase in the first quarter of the year. Feel free to reach out if you would like to discuss outlook and portfolio construction to ensure that your wealth is being maximized. #ThinkForward