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Did Trump’s lumber tariffs make your new house more expensive?

In May 2018, the cost of lumber hit its highest price on record, making builders nervous about the rising cost of building a home. How much was passed on to you? Why was there a tariff in the first place? We break down all of your questions here.

At 4th and Race Streets in Philadelphia, a new apartment building was being framed in June. Softwood lumber, much of which comes from Canada, is used in new housing construction.
At 4th and Race Streets in Philadelphia, a new apartment building was being framed in June. Softwood lumber, much of which comes from Canada, is used in new housing construction.Read moreTOM GRALISH / Staff Photographer

With so many things that homeowners need to focus on when buying these days — the price, location, taxes, and more — it's likely that most have never given much thought to the wood holding their house together.

It's probably time they start.

The conversation surrounding lumber — meaning wood that has been cut into different pieces — transitioned from an inside-baseball kind of topic to one far more mainstream this year as the price of lumber surged to its highest price on record, prompting outcry everywhere, from construction sites to Washington.

But there's also a reason why homeowners should care: Higher lumber prices mean higher home prices, some argue.

Today, the price of lumber has fallen far from its height of $639 (for 1,000 board feet) in May, hovering, instead, Wednesday morning around $340. But the price of lumber remains volatile, the market shows, and recent events — wildfires, hurricanes, and a new trade deal under President Trump — suggest it could drastically change again.

Here, we break down what it all means for the U.S. housing market — and you.

What is lumber, anyway, and how do we use it?

While they might sound interchangeable, timber and lumber are different. On top of that, two types of lumber exist. If it seems complicated, don't worry. We're keeping things simple.

In the United States, timber refers to a tree that has been cut down to be sold. (Hence, the old lore that a logger might shout "Timber!" as a tree falls.) In contrast, lumber — the focus here — is wood that has been sawed into finished products, such as beams and planks.

For construction, builders rely heavily on softwood lumber, meaning wood that comes from evergreen trees, such as spruce and pine, because they tend to grow faster and, comparatively, are less expensive. Mostly, softwood lumber is used to construct the "framing" — or the skeleton — of a house. To construct a 2,426-square-foot house, the U.S. median for size last year, a builder needs about 15,000 board feet, which takes about 300 trees.

In contrast, oaks and maples produce hardwood lumber, which is typically used for high-end furniture or flooring, among other products.

Why are people suddenly talking about lumber?

Controversy surrounding softwood lumber has been brewing for decades, but it wasn't until 2017 that things really started heating up (again).

A quick backstory: Canada is one of the largest producers of lumber in the world and supplies more than one-third of the lumber the U.S. needs. But that relationship has been complicated since the 1980s, when the U.S. accused Canada of subsidizing its lumber industry.

Because most forests in Canada are owned by provincial governments — meaning the law, not the free market, dictates the price that loggers pay landowners to harvest their trees — the U.S. alleged then (and now) that the American logging industry is at a disadvantage, largely because the prices that Canadian governments set are typically lower than rates in the U.S., where competition to harvest privately owned forests is strong. The U.S. lumber industry says that makes the final price of Canadian lumber artificially low — giving Canada a competitive edge.

So in 1982, a group now known as the U.S. Lumber Coalition argued that a tariff should be applied to Canadian lumber imports to make American products competitive again. And thus began a decades-long dispute.

Most recently, the dispute flared in April 2017, when the Trump administration decided to impose a 20 percent tariff on Canadian softwood lumber.

About one year later, the price of lumber hit record highs.

So, Trump should be blamed?

Depends on whom you ask. For the last year, much has been written about "Trump's lumber tariffs." And the president has been known to send an early-morning tweet or two on the subject.

Yet Brendan Lowney, a principal of Forest Economic Advisors, a forest industry analysis company, said the tariffs likely would have happened no matter who was elected.

"This is really a bipartisan dispute," Lowney said. "You have Republicans in the South and Democrats in the Northwest who agree. … The U.S. has always had a very similar stance, whether or not Trump was elected."

Plus, Lowney argues, there have been other reasons why prices have jumped. First, he notes, Canadian trees have been diminished by recent pine and spruce beetle infestations in British Columbia. Wildfires in Canada, Oregon, and Washington have also reduced supply and kept loggers out of the forests. Canada's abnormally cold winter last winter was detrimental to its rail lines, preventing lumber from being transported as frequently or quickly.

And all the while, U.S. lumber production has not been able to meet the demand that the current housing recovery requires.

Is this making housing more expensive?

Definitely — though to what extent depends, again, on who you ask.

Earlier this year, the National Association of Home Builders, a trade association, released an analysis that said the lumber tariffs have added $9,000 to the price of a new single-family home since January 2017.

"A builder can only absorb so many cost increases and still make a profit before they have to change the business model or build smaller homes," said David Logan, NAHB's director of tax and trade policy analysis. "And the population of people who can afford a home can decline."

Lowney, however, has argued that the NAHB's analysis is exaggerated. Instead, he says, it's more likely that rising lumber costs add less than $4,000.

Either way, in the Philadelphia region, builders say things are more complicated. Though they say rising lumber costs have made materials more expensive, that does not necessarily mean it can all be passed on to the customer. (And it certainly can't be when sales contracts are locked in before a house is finished.)

"In our market, we don't really have the ability to move prices, so it really has an effect on our margins more than anything else," said Bruce Paparone, a home builder in South Jersey, a market that has been slower to recover than Philadelphia. "We don't really have the ability to raise prices the same way [builders can] in other parts of the country."

Isaac Ohayon, founder of Masada Custom Builders in Philadelphia, says that's even true in the city's robust housing market, in which he's currently planning a five-story, 40-unit apartment complex in Northern Liberties. The cost of lumber alone today will cost him about $50,000 more than it would have two years ago, when he first purchased the property, he said.

"Philadelphia has a cap — a wall that we cannot break in terms of pricing and selling," Ohayon said. "It's not like New York. … It's not like I can finish the building and say, 'You know what? I'm going to charge you $3 a square foot. In New York, I could get $5 per square foot. But in Philadelphia, you hit a wall."

As for whether that will make its profitability difficult, Ohayon said: "I don't have room for a mistake anymore. If I'm going to have more increases [in cost], it's really going to hurt the project."

What’s next?

Many are still figuring that out.

The spate of natural disasters that the U.S. has recently experienced — Hurricane Michael, for example, or the spread of wildfires — could put upward pressure on lumber prices when cities begin to recover, some have argued. But even if it does, others say, a noticeable price change would take months or years, as rebuilding will not begin for a while.

In addition, there is hope that Canada and the U.S. could reopen negotiations surrounding lumber now that a new trade deal has been struck between the countries and Mexico. While the new agreement, called the United States-Mexico-Canada-Agreement, or USMCA, still has a long way to go — it still has to be ratified before it can replace NAFTA, and it doesn't directly address lumber —many are hoping Canada and the U.S. can work something out. It wouldn't be the first time: Under George W. Bush, Trump's Republican predecessor, the U.S. managed to sign and keep a nine-year agreement that essentially halted the fighting.

But if they can't work it out, it's difficult to know where the fight could go.