The coronavirus pandemic has caused problems with supply in just about every industry, not just lumber. Last summer, we saw a shortage in everything recreational, from ATVs to RV’s, batteries, and patio cushions. The computer industry is still trying to meet the demand of new home office and gaming PC needs, and doesn’t show signs of stopping. And if you’ve been considering any home renovations or woodworking project, you’re likely no stranger to the skyrocketing prices of lumber due to the higher demand. But how has this shortage of lumber affected home prices?
Home Improvements Leading to Short Supply of Lumber
When the COVID-19 pandemic hit, forced lockdowns resulted in closed lumber mills. Then those in lockdown started making improvements to their houses and backyards, as they looked forward to a summer stuck at home. Decks and fences were being built in record numbers as people renovated to accommodate their new work-from-home/stay-at-home lifestyles, swiftly leaving lumber mills in short supply and scrambling to catch up, leading to an increase in prices.
If you’re considering a backyard facelift this spring or summer, you can expect to pay as much as double pre-pandemic lumber pricing. And if you need to contract your work out, there again, you’ll likely pay even more, as contractors are straining to keep up with workloads.
The Shift to a Seller’s Market
If you’ve been paying attention to the real estate market in Saskatoon, you’ve no doubt noticed the shift to a seller’s market. The shortage of homes for sale has caused desperation in buyers who need to buy for many reasons. Perhaps they just sold their home to take advantage of rising prices. Or maybe low interest rates took them from being unable to afford a home to desperate to find one before their locked-in rates expire.
Whatever the reason, REALTORS®, like myself, are seeing more and more bidding wars and offering scenarios where the sellers have the upper hand. Buyers are offering at or above asking prices, causing prices to increase in every market across Canada, including Saskatoon.
The Cost of Lumber & Rising Home Prices
So how, you ask, does the cost of lumber indirectly affect rising home prices? Before COVID-19 hit, 1,000 board feet of 2’ x 4′ lengths cost approximately $550. As it stands now, that same amount costs more than $1,400. Now, take a typical 2,500 sq ft home, add in those rising lumber prices, and you are adding as much as $30K to the cost of building a new house!
Now, let’s consider a homebuyer weighing their options to build new or buy an existing home. With a new build home costing approximately $30,000 more now than it did before the COVID-19 pandemic, many are deciding to forgo building new and begin looking for an existing home for sale instead.
As we are in a seller’s market, there are not many available homes, especially in the most popular price ranges. But let’s say that they do manage to find one they would like to purchase. The scarcity of inventory right now has buyers right changing offer prices. There is no time to offer low and see what the counteroffer might be. In this market, the house will likely be sold to another buyer quite quickly. So they don’t take any chances and offer at or above asking, which is likely still a better deal than the new build they were considering.
From what we thought was a simple, short-term inventory issue to now a national crisi of rising real estate costs, this is how lumber prices affect the current home prices. So what can you do to best protect yourself as a buyer? Well, especially in a seller’s market, it is crucial to work with a local real estate professional who understands what is happening in today’s market—and that’s where I can help. Contact me today and let’s get your journey of buying a house off on the right foot today!
One of the most common questions I get when working with new clients, especially first time home buyers, is “what’s the difference between a buyer’s market and a seller’s market?” These terms are commonly discussed when talking about real estate and have been particularly sensationalized on television. But while you may know them and have a general understanding of what they mean, the details of what makes these markets actually are may be a little less clear. So, let’s clarify that, shall we?
What is a Seller’s Market?
A seller’s market is when there are more buyers in the market than there are homes for sale. This means the demand for housing is higher than the actual supply of homes available, so sellers are at an advantage. They know that the need is there, so they can be more liberal with their pricing. The reality is that their house is going to sell—usually very quickly—and that there’s a higher chance they will receive multiple offers, giving them more power when it comes to negotiation, so it’s an excellent time for putting your house on the market.
Usually, you can tell when we’re in a seller’s market by looking at the trend in home prices and days on the market. When prices are up and the days on the market are low, it’s a great time to be a seller.
So what causes a seller’s market? Well, the most common driver for an increase in buyer’s is usually the local economy. When there are more jobs available, that will often attract more new residents, causing a surge in home buyers. But other influences toward a seller’s market include: lower interest rates attracting buyers or sudden spikes in interest rates pushing on-the-fence buyers to buy before prices go up even more.
What is a Buyer’s Market?
A buyer’s market is when there are more homes for sale than there are buyers in the market. The more selection the limited buyers have means a higher chance properties won’t be chosen, so sellers are forced to drive their pricing down to a more attractive number that can compete with the other properties available. This also gives buyers more power in negotiation, as they can always continue their home search elsewhere, so they can really get the most bang for their buck.
Signs of a buyer’s market can also be found by looking at the market trends for home prices and days on the market. When prices are down and the days on the market are high, it’s a great time to be a buyer.
A buyer’s market can be brought on by many different influences, including interest rate trends. Higher interest rates will limit the amount that lenders will offer buyers, thereby reducing the number of people in the market. New builds can also cause property prices to drop, increasing the supply before the demand is there, as well as natural disasters.
Tips for Working in the Opposite Markets
As much as it can be helpful to know what to look for to determine the type of market that your local real estate might be in, sometimes you don’t always have the option of waiting it out for when the market shifts. Financial or time constraints can often have you working in the opposite market—it happens! But that doesn’t have to mean you’ll be entirely out of luck. Here’s how to maximize your investment, even when the market isn’t quite in your favour:
Buying in a Seller’s Market
If you find yourself in need of buying in a seller’s market, you’ll be going up against a lot of other hungry home-seekers. Here’s how to stand out in the crowd:
Get pre-approved. While you might be anxious to start shopping before you miss out, I can’t stress enough how important it is to get pre-approved for a mortgage first. This shows sellers that a bank has already guaranteed you the lending amount you’ll need, so they won’t have to wait as long to hand over the keys!
Start with a strong offer. When the pickings are slim, there’s a much higher chance that any offer you give will be going up against at least one other, so you want it to be competitive. This is where working with a buyer’s agent can be extremely helpful, as we’ll be able to guide you on which offers will be most effective against the others.
If you like it, don’t wait. Houses in a seller’s market don’t last long, so if you’ve fallen in love with a house for sale, move quickly and don’t be shy about it.
Be responsive. Always be available to answer questions from the seller or your REALTOR® so you never miss out on an opportunity.
Be flexible. If a seller needs more time before move-in or is asking for other conditions, be willing to work with them.
Selling in a Buyer’s Market
If you’re stuck selling in a buyer’s market, your home is going to be compared to a lot of others. Here’s how to make your home stand out:
- Know your competition. Have a good idea of what’s selling and look for common trends that you could apply to your home to make it more attractive.
- Make sure the price is right. Money talks and when buyers have the power, you want to be the one offering them the best deal. Get a reliable home evaluation done and keep in mind that your home is only worth what someone is willing to pay.
- Be flexible. If a buyer wants a quick possession or other reasonable conditions, do your best to work with them.
- Consider every offer. It’s important to remember that every offer might be the only one you’ll see for a while, so take each one seriously. This is where an expert real estate agent can be a huge help in assisting you with weighing the pros and cons to make the decision to reject or accept.
If you’re considering entering the market as either a buyer or a seller, it’s important to know which kind of market you’re working with. Know the signs for each and keep your eye out so you can jump in at just the right time. And if you’re worried you won’t be able to tell when the time is right, don’t be afraid to reach out! I’m always more than happy to watch the trends for you and help you make the best decision in buying or selling any time of year!