The recent slide in US lumber prices has caught the attention of industry watchers on both sides of the border, with many asking what this means for Canada’s housing market and mortgage sector.
While the Wall Street Journal reported a roughly 25% drop in lumber futures since early August, Canadian analysts and mortgage professionals are weighing the ripple effects for builders, homebuyers, and lenders.
Lumber’s warning sign and the Canadian context
Lumber prices have long been seen as a bellwether for the broader housing market. Lumber is often the canary in the coal mine for construction activity. When prices fall sharply, it’s usually a sign that demand is cooling or that supply is outpacing what builders need.
Russ Taylor, a wood market analyst, observed that the industry had broadly anticipated the new duties and prepared accordingly. However, Canadian mills—especially in Western Canada—may have overbuilt their inventories. With excess supply across the market and demand for lumber remaining subdued due to high interest rates, Taylor believes it could take a while for conditions to stabilize.
“It's going to take months before this all unwinds, because now you've got way too much inventory in the field,” he said. “You’ve got way too much inventory at the mills, and prices are so low that anybody selling today is totally offside in Canada,” he told Mortgage Professional America.
The US market’s volatility has been driven by a mix of trade uncertainty, fluctuating tariffs on Canadian softwood lumber, and a slowdown in American homebuilding.
For Canadian builders, the impact is twofold. On one hand, lower lumber prices could ease construction costs, potentially making new homes more affordable. On the other, ongoing trade disputes and higher duties, recently raised to about 35% for most Canadian producers, continue to squeeze margins and create uncertainty.
Mortgage rates and homebuying outlook
The connection between lumber prices and mortgage rates is indirect but important. As construction costs fluctuate, so too does the pace of new home development, which can influence housing supply and, by extension, prices and borrowing demand.
Kevin Lee, chief executive officer of the Canadian Home Builders’ Association (CHBA), told Canadian Mortgage Professional in August that Canada’s homebuilding crisis could be more severe than it appears. He noted that current housing start figures are largely inflated by the construction of purpose-built rental units.
While builder sentiment in Ontario and British Columbia is weaker compared to the Prairies and Atlantic Canada, Lee indicated that the outlook for construction is deteriorating in other regions as well.
Early numbers from real estate boards pointed to increased home sales in Vancouver, Calgary, Edmonton, and Montreal. However, Calgary and Edmonton remained below last year’s activity levels, and Toronto’s momentum paused after several months of gains.
CMP
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