As we head into the Holiday season, and with the U.S. Thanksgiving holiday over, businesses are cautiously optimistic the new year will bring relief from inflation, and that Hardwood demand will improve as prices stabilize, along with seeing improvements in economic conditions and ongoing supply chain issues get resolved. The challenge is to reduce costs for all who are involved in the Hardwood sector, from loggers to sawmills to secondary manufacturers and of finished goods.
Depending on areas contacted, producers and resellers of the regionally important Hard Maple say market conditions are different than earlier this year. While some were unable to fill all available orders, others are having a hard time moving all their production. It was noted that kiln-dried inventories of Hard Maple had risen in the fall despite price reductions. With prices dropping, their customers hesitated placing orders unless necessary. It was noted that the price decrease was smaller more recently.
Demand for Soft Maple is not great. As new home construction has slowed down both in Canada and the U.S., this has impacted Soft Maple demand, as it has for other species. Prices are trending down as a result.
Basswood saw a competitive market atmosphere during early fall. Kiln-dried demand was slower and production was steady and so some contacts had more inventory and some were lowering prices to generate sales.
Cherry is not seeing great performance, as was the case in the past on all market fronts. This species does not seem to be part of the trend at this time in North America as many cabinet, millwork, furniture and wood component plants purchased small volumes of this species. These sectors have reduced their purchasing as they, too, have had reduced order files. The same is said for shipments to overseas markets, noted contacts. As a result, supply is exceeding demand, and thus prices are affected.
Hickory demand is based on a replacement basis for many buyers at this time. Therefore, prices are edging lower. Domestic and international markets have abundant supplies of this species. Sawmills are able to meet production demand for green Hickory.
The Number 2A and 3A Red Oak and White Oak prices held steady in mid-October, ending the long weekly decline of prices for this species. Residential wood and truck trailer flooring manufacturers are still controlling purchases of these two species for these grades, but some were said to have stopped lowering prices or slowed the rate of decreases.
Red Oak sales are hard to come by due to unfavorable trends in some important markets which is negatively affecting demand for Red Oak. The largest export market for Red Oak, China, does not have a strong economy at the moment, due in part to lockdowns caused by COVID and the potential for more. Buyers there are being very price conscious when placing orders. The other factor is the residential wood flooring manufacturers who are reducing their purchases of this species due to slow business, and also consumer interest is more for White Oak than Red Oak flooring. As well, truck trailer flooring companies have ample lumber for their needs. Red Oak also only has a small share of the cabinet, furniture, moulding and millwork markets. Contacts noted prices were softening as well for most green and kiln-dried items.
As for White Oak demand, it has also waned in markets, and so supply and demand are not balanced, resulting in price pressures. Poplar demand, which was very popular until recently, is now one of the worst sellers, noted some contacts. Although domestic end users are still purchasing this species, many have reduced the amount purchased. Demand from Europe and Southeast Asia are reported to be down as well.
According to Royal Bank of Canada’s (RBC) Monthly Housing Outlook, Canada’s housing market’s downturn has longer to run. September data gave few indications the bottom is near. Both activity and prices continued to trend lower in the vast majority of local markets. Demand-supply conditions generally eased some more. And with further interest rate hikes likely on the way, RBC expects more of the same in the period ahead across the country. That said, activity in Ontario and British Columbia may be closer to stabilizing (though not so much for prices due to persisting affordability issues).
September marked the seventh-straight monthly decline in home resales in Canada (down 3.9 percent). This puts the correction at -36 percent since February. While Prince Edward Island (-10.8 percent), Nova Scotia (-8.1 percent) and Manitoba (-6.6 percent) saw the largest drop in September, it’s been British Columbia (-47 percent), Ontario (-41 percent) and Alberta (-41 percent) that fell the most in the past seven months. Activity is now below pre-pandemic levels in all provinces except Alberta, Saskatchewan, and Newfoundland and Labrador. Home resales in Canada (at 419,900 units on a seasonally adjusted and annualized basis) are the softest in a decade and likely to stay that way for a while longer.
Property values similarly have declined in each of the last seven months nationwide since September and in most of Ontario (including Toronto), and the past six months in key BC markets (including Vancouver). Canada’s composite MLS Home Price Index fell 1.4 percent month/month (m/m) in September, and is now down 8.8 percent since the February peak. Leading the price correction have been smaller markets in Ontario that saw tremendous appreciation earlier during the pandemic: Cambridge (-20 percent), Kitchener-Waterloo (-18 percent), Brantford (-16 percent), London (-16 percent) and Hamilton (-16 percent). Chilliwack (-13 percent) and the Fraser Valley (-11 percent) in British Columbia also recorded outsized declines since the peak.
Prices in larger markets are down significantly too—just not quite as much, adds RBC. Toronto’s MLS HPI has declined 9.2 percent (or $118,000) since February, including a 1 percent drop in September. The correction ranks as the second largest in the area since the inception of the index in 2000 and is rapidly closing in on the downturn that took place in 2017-2019 (-10.9 percent). Vancouver’s index is off 5.7 percent (or $71,000) since March. RBC thinks it has much further to go given the intense unaffordability pressures currently in place. Their latest Housing Trends and Affordability report noted Vancouver buyers face the highest ever ownership costs anywhere in the country. Falling prices are a more recent phenomenon in Montreal where the MLS HPI crested in May. The correction is picking up steam, though. September saw the biggest drop (-1.7 percent m/m) so far, deepening the downturn to -4.7 percent (or -$25,600).
RBC expects home resale activity to stay quiet in the coming months across the country. The sharp interest rate increases to date and likelihood of additional hikes in the coming months—RBC anticipate the Bank of Canada will take its policy rate deeper into restrictive territory to 4 percent by December—will continue to hold back buyers. They see this depressing demand further though some markets may have more limited room to fall. They think resales have plummeted to such low levels in many areas of BC and Ontario that they will soon reach a floor.
Rising rates will intensify affordability issues in the near term and sustain heavy downward pressure on home prices. RBC expects benchmark prices will fall approximately 14 percent nationwide by next spring from the recent peak, with steeper declines (-16 percent) in Ontario and British Columbia, and milder corrections in Alberta and Saskatchewan (-4 percent).
