Soaring Lumber Prices Limit the Housing Sector’s Potential
With new home sales currently surpassing 2019 levels, the demand for ground orientated homes demonstrates the strength and perseverance of the housing industry and its important role in our nation’s economic recovery in the wake of COVID-19.
As people have been spending much more time at home, they have clearly been thinking about the space they live in and many are now looking to make adaptations to their living environment. For some, this means doing some home renovations or finishing outstanding projects, and for others, this means purchasing a new home. In any case, the demand for lumber has been growing.
Due to insufficient domestic production and tariffs on our Canadian lumber resources, the price of lumber has seen a staggering increase in recent months – rising 80% since mid-June to over $600 per thousand feet of board. For a newly built 1,800 sq. ft. home, this price increase adds approximately$7,000 to overall building costs.
This sort of price increase can constrain supply, exacerbate affordability issues, and limit the housing sectors ability to contribute to our nation’s economic recovery. Higher building costs also translate into additional strain on potential home buyers to qualify for mortgages under the current mortgage stress test structure.
The federal government can help Canadians looking to buy a home to manage the impacts of the skyrocketing lumber prices by implementing the tweaks to the mortgage stress test that CHBA has been recommending. CHBA has been recommending that the federal government reduce the test rate on a declining basis – given that there is a reduction in risk with longer mortgage terms for both Canadians and the financial system.
CHBA is requesting that the rate be reduced on a declining basis down from 2% for 5, 7, and 10-year mortgage terms for both insured and uninsured mortgages. CHBA is also requesting a return to 30-year amortization periods for first-time buyers. Such changes would go further to support well-qualified home buyers in their goals to achieve homeownership, while at the same time strengthening the economy and the Canadian financial system.