American home builders recently received notification that lumber prices which have peaked at unprecedented highs this past year may soon see some relief, in part to the efforts of the United States Commerce Department.
The U.S. Commerce Department along with trade officials have been working diligently to reduce duties and tariffs placed on lumber imported from Canada and provide relief to the home construction industry. National Association of Home Builders (NAHB) Chairman Chuck Fowke reported, “The Commerce Department’s action to reduce duties from more than 20% to 9% on softwood lumber shipments from Canada into the U.S. is a positive development, but more needs to be done. Tariffs have contributed to unprecedented price volatility in the lumber market in 2020, leading to upward pressure on prices and harming housing affordability for American consumers. Prices won’t come down enough based on tariff reduction alone. The U.S. needs to work with Canada to end the tariffs and achieve a long-term, stable solution in lumber trade that provides for a consistent and fairly priced supply of lumber.”
These reductions come after a decades-long dispute between U.S. and Canadian lumber producers centering on Canadian timber pricing policies. In 2017 industry leaders began urging the two countries to begin negotiations after tariffs of over 25 percent were imposed.
Lumber prices in July, 2020, for the first time since 2018, increased to over $500 per thousand board feet. Three months later in September prices peaked at the historical high of $950 per thousand board feet. Currently prices have dropped, but over all are still approximately 60 percent higher than in April, 2020. These skyrocketing costs translated into increased construction costs of $10,000 to $15,000 for each new residential residence.
The lowest mortgage interest rates on record have become the saving grace for both home builders and new homeowners. Interest rates, in some cases as low as 2.5 percent, have gone a long way in offsetting increased lumber prices. In fact some builders are now showing loan appraisers their actual lumber costs, which in turn allows the appraiser to ethically and responsibility adjust their appraisals accordingly.
Bottom line is while a reduction of over 10 percent is a step in the right direction; more work needs to be done in order for the home building industry to reach a necessary level of economic stability.
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