July 25, 2017 10:35 am

B.C. wildfires likely to add to U.S. homebuyers’ frustration, as lumber supply crunch worsens

Smoke from wildfires burning in British Columbia and Alberta is seen drifting through the Rocky Mountains.

Matt Melnyk

The wildfires that are burning up British Columbia may well be fueling homebuyer frustration south of the border, by exacerbating a shortage of lumber in the U.S. that’s helping push home prices there to unprecedented highs.

As the fires multiplied across B.C., several lumber mills had to temporarily halt operations, worsening a pre-existing lumber supply shortfall in the U.S.

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READ MORE: B.C. lumber, mining industries hit by wildfires; could lead to higher prices

U.S. homebuilders have been struggling with high lumber prices in recent months, and the inventory of homes available for sale has been dropping for 25 straight months on a year-on-year basis.

This, in turn, has helped send the median price of a house in the U.S. to an all-time high of US$263,800 (C$329,761) last month, according to the National Association of Realtors. It was the sixth straight month of record high increases and 6.5 per cent above the median price a year ago.

U.S. lumber dealers have been running down their inventories this year amid the ongoing trade dispute between Canada and the U.S., according to the Wall Street Journal.

Washington recently slapped duties of nearly 27 per cent on most U.S.-bound Canadian lumber following months of bickering after the 2006 Softwood Lumber Agreement expired in October 2015.

READ MORE: Jobs on the line as U.S. slated to add new softwood lumber duty

Now, the fires are making things worse.

The idling of B.C. lumber mills has further shrunk the supply of lumber reaching the U.S. market just when construction season is in full swing, Mark Wilde, an analyst at BMO Capital Markets told Global News.

“The fires are hitting at a time of peak seasonal lumber demand.”

WATCH: Trudeau government unveils plan to help softwood lumber producers

Could this give Canada some leverage when negotiating lumber exports with the Trump administration?

U.S. lumber dealers could turn to the administration of President Donald Trump and say, “Look, in addition to this trade case, we now have the impact of the wildfire,” said Peter Glossop, a foreign investment lawyer and partner at Toronto-based business law firm Osler.

Some B.C. lumber mills might also seek an exemption from the trade duties for wood that’s been damaged by the fire but is still marketable, Glossop told Global News.

READ MORE: U.S. excludes three Canadian provinces from softwood lumber probe

Still, the summer price hike is unlikely to become serious enough to have a major impact on the outcome of the lumber negotiations, he added.

There are signs that the supply crunch in B.C. may ease off soon, said Wilde, with at least one mill already reporting it has restarted operations.

And the bigger of the two duties currently applied to U.S. imports of Canadian lumber, which is worth nearly 20 per cent, is set to expire on Sept. 2, he added. U.S. buyers will likely shore up their stock after that.

© 2017 Global News, a division of Corus Entertainment Inc.

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