Weather at the start of this year was perfect for logging conditions due to the cold and limited snow, noted some contacts. Log decks are still low, however, because of labor shortages. It was reported there was an actual decrease this year in mill output during the first quarter. The same was being felt south of the border as recently as February. With housing demand remaining strong, the hardwood demand also continues to be strong on the markets. This is especially true for flooring, cabinets, furniture and mouldings and millwork sectors as it is driving prices higher for many green and kiln-dried species of various grades and thicknesses. Businesses are also seeking pallet and railroad ties stocks, as well for board road supplies.
Ash sales are good, noted contacts, for domestic and international markets, but kiln-dried inventories are thin, with prices firm to being higher, reported contacts. Sawmills and wholesalers are easily shipping green production, and concentration yards and secondary manufacturers are trying to increase their supplies, which hardly meet demand.
Basswood production is also low for this species, which is generally used to carry business inventories into summer. Many mills are processing Maple and not producing Basswood and other lower valued species, which means green Basswood is not meeting buyers’ needs, particularly for the upper grades. Kiln-dried Basswood markets are strong due to this species being substituted for more expensive ones when possible. Demand is outpacing supply, and prices are rising as a result.
With a strong housing market, secondary manufacturers are using Beech to reduce their raw material costs and as an alternate to other higher priced items. Some contacts noted shortages of plywood, MDF, and HDF, pushing some secondary manufacturers to use lower cost species, like Beech, instead of sheet stock.
As with Beech, Birch is also being used as a substitute here, and in the U.S. border states, for Hard and Soft Maple because of the cost difference. Birch supplies are tight and prices are firm. Kiln-dried inventories are low as well.
Hard Maple is in great demand both in Canada and in the U.S. Due to the shortage of skilled labor, log receipts at some sawmills are limited. Most grades and thicknesses are seeing a shortage for green stocks, and thus prices are rising. Demand is also strong for kiln-dried Hard Maple.
With the price difference between Hard and Soft Maple, contacts noted that they are using more Soft Maple. Sales are good, with demand steady to strong and markets seeing additional green supplies. Supply has not caught up to buyers’ needs yet. Kiln-dried inventories are low relative to demand.
As renovation and remodelling spending is at an all-time high, Red Oak demand has increased. Wholesalers are rebuilding their inventories now. Kiln-dried inventories are at manageable levels with prices steady. Demand is meeting developing green stock production. It was noted there was some price softening for the upper grades. As for White Oak, production is limited, with low output and steady demand keeping prices steady.
According to data from the Canadian Real Estate Association (CREA), home prices jumped in January 2022 from December 2021 (the latest data available as of this writing) to a new record, as demand continued to rise as new listings plunged over winter. The national average selling price hit a new high at C$748,450 ($588,589) in January, up 4.9 percent on the month and 21 percent higher from a year earlier.
CREA’s home price index also posted record month-over-month and year-over-year gains, up 2.9 percent and 28 percent respectively. Sales were up 1 percent on the month, while new listings plunged 11 percent, driven by a sharp decline in Toronto.
Canadian housing starts, meanwhile, fell 3 percent in January from December last year as a decline in multiple-urban starts outweighed a gain in single-detached urban starts, separate data showed.
The seasonally adjusted annualized rate of housing starts dropped to 230,754 units in January, below analyst expectations of 245,000 and down from a revised 238,405 units in December, showed Canada Mortgage and Housing Corporation data. Although it is the slowest pace of building since October 2020, it remains above the trend seen pre-pandemic.
According to data published, the Canadian housing sector has been resilient throughout the coronavirus pandemic. Markets from coast to coast have seen unprecedented growth in sales activity and home valuations alike. Growth has been consistent across virtually every segment of the market, with urban condominiums bouncing back after experiencing a lull in 2020, to the spike in single-detached activity in suburban and rural communities.
The question on people’s mind is: can the Canadian real estate market sustain this momentum? With talk of the Bank of Canada raising interest rates this year and the federal government tightening mortgage lending standards, the market might start to ease.
Although borrowing costs may be on the rise, one significant factor is the historically low housing supply. Investors became more active with the Canadian real estate market over the last several months.
When addressing the Ontario Securities Commission, the Bank of Canada deputy governor noted that a “sudden influx” of investors supported the rapid price gains in 2021. Data from the central bank noted that investors and repeat homebuyers represented a bigger share of the market than first-time homebuyers last year.
The Bank’s analysis finds that many Canadians are buying homes as investment properties, and the importance of this phenomenon has grown. For example, in a report on the Ontario housing market, investors account for more than a quarter of the province’s homebuyers, lifting prices even higher, especially in Toronto. This was unheard of five to 10 years ago, when investors made up a relatively minor segment of the sector. So long as inventory levels continue to shrink, this could be the norm moving forward.
If rates go up, industry observers and financial experts claim that a rising rate environment generally deters investors because higher rates would potentially decelerate price growth and possibly lower valuations, sending investors into safer bet assets. But until the central bank raises rates to where they were before the pandemic, investors could continue competing with first-time homebuyers for scarce supply, and successfully outbid them for these residential properties. This forces people to the upper limit of their affordability, and they may not buy in the end as too pricey for them.
According to RE/MAX’s 2022 Canadian Housing Market Outlook Report, average residential real estate prices are expected to increase 9.2 percent nationwide this year. According to a survey conducted on RE/MAX’s behalf, nearly half of Canadians still think buying a home is the best investment decision you can make today.
Everyone is watching the central bank’s upcoming policy meetings to see what will happen on the interest rate front. But available housing will continue to be the focus of those who can afford to be in the market. Should rates go up as well as housing prices, this may cause a slowdown in home sales, thus reducing spending directed to the hardwood industry, as consumers may buy the home, but not be able to spend on new furnishings, upgrades or renovations upon moving in, as is often the case when home buying.
