Housing starts are off to a sluggish opening in Canada in 2024 – and their muted performance throughout last year weighed down on lumber production across North America.
Ontario was the only region across North America up until October to increase production over the previous year in a “pretty rare” trend, according to wood market expert Russ Taylor (pictured top), who said there’s little prospect of a big production uptick in the year ahead.
“The US has finally just nudged above last year’s trend in production, but we didn’t really have a great rebound from 2022 into 2023,” he told Canadian Mortgage Professional. “And when you look into this year, into 2024, housing starts are kind of going to be on pace with last year’s pace.”
There’s little clarity at present over how economic trends will play out across Canada in the US in the year ahead, with some observers bullish over the outlook and others taking a more cautious approach. Still, a dramatic spike in housing starts doesn’t appear to be in the cards.
“Some [reports] are up, some are down, some are changing, some are predicting the Fed easing mortgage rates sooner and then some now later, and there’s this jockeying back and forth,” Taylor said.
“There’s going to eventually be good news for housing starts, but it sounds like this year is going to probably be a mirror image of last year, maybe trending up towards the second half of the year on the production side.”
BC still feeling the strain from mill closures
British Columbia, one of the continent’s foremost regions for lumber production, has been pummelled by mill closures and lack of timber in recent times, seeing production levels plummet as a result.
The province was left reeling last month by the announcement of another mill closure, with West Fraser Timber winding up its sawmill in Fraser Lake – the result, the company said, of its inability to access economically viable fibre in the region.
Temporary curtailments and shift reductions have taken place across a variety of other mills across the province, with declining production in BC set to weigh heavily on the outlook for the rest of Canada.
Continuing low prices, meanwhile, mean BC mills are still struggling to turn a profit, according to Taylor.
“Last year in February, prices peaked at $460 per 1,000 board feet for Western SPF [Spruce-Pine-Fir], and then they plunged to $350,” he said. “They stayed around $350 for the months of April, May, and June. So it was terrible. And those are below breakeven levels for BC mills.
“Currently, they’re at $440 – so very, very close to the peak of last year and trending slightly higher. So we have some positive side on the prices, but we’re still seeing no curtailments. If you’re buying wood off the open market, log prices are still too high, and so it’s making it tough for mills to make any money.”
Export markets contribute to gloomy overall lumber outlook
While the prospect of lower interest rates by the end of this year would be welcomed by borrowers and builders alike, it’s hardly a panacea for the woes of the lumber market, according to Taylor – particularly with rates likely to fall at only a moderate pace.
“Lower mortgage rates are going to help with mortgages, with new home sales, they’re going to help repair and remodelling – but they’re still not going to come down fast enough for the year,” he said.
On the export market side, meanwhile, the picture is also grim. “The US market is probably the best in the world right now, and we’re complaining about that market,” Taylor said. “Japan is flat with demand. Europe’s a real mess. They’re going to be soft the whole year with housing starts and demand really low.
“And for China, which was a big market for BC, volumes have dropped to a trickle. So export markets are weak; the US market’s the only game in town, and there’s too much supply chasing that market. We’re still going to see a bit of a tough time.”