Impact of Lumber Tariffs on New Construction
Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re talking about construction costs. Lumber is a key ingredient in construction in the US. Prices have fluctuated wildly over the last several years.
Today, Canadian lumber accounts for a significant portion of the lumber used in new home construction in the US—about 25 to 30% of all the lumber used in US home is imported from Canada. If the US is going to impose tariffs on Canadian lumber, we need to look at how much that’s going to result in actual cost of lumber at the finished product.
In some cases, what is exported to the US is raw timber, which is then processed in lumber mills in the US. And in other cases, what’s being shipped to the US is finished lumber from Canadian sawmills. The economic value of those is different, depending of course, whether we’re talking about a raw material or a finished product.
Somewhere between 50% and 60% of Canada’s sawfoot lumber is exported to the US in a given year. And about three quarters of that, sometimes up to 80%, is in fact destined for the US. The rest is destined for other countries around the world. Now lumber prices have risen sharply since the fall of 2024.
[… and so on …]
Now let’s be clear, 418,000 units will only be built if the rate of new construction continues in Q1, Q2, and Q3 of this year, so it’s a little misleading when quarterly numbers are extrapolated to annualized numbers. So, when we put all this into context, the price of lumber is a rounding error compared with the cost of financing, which has a much bigger impact on home affordability.
Regardless, I don’t see either of these moves having a major impact on the price of a new home. It is interest rate sensitive. That’s going to be a much bigger factor than offered lumber prices, as you think about that. Have an awesome rest of your day. Go make some great things happen, and we’ll talk to you again tomorrow.
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