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Is the Christmas Tree Shortage a Bad Sign for Homebuilding?

By Nell McPherson – Dec 31, 2021 at 3:11PM

Key Points

  • Some of the most popular Christmas trees are also highly desired homebuilding woods.
  • Drought, fires, and even the 2008 financial crisis have played roles in reduced Christmas tree supply and higher prices this year.
  • Pandemic production shutdowns, demand, and Canadian tariffs are the biggest factors impacting lumber prices.

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Does the Christmas tree shortage mean even higher lumber prices and more expensive homebuilding in 2022?

Lush and full with long, soft needles and a pleasant yet not overwhelming pine scent, the white pine is a popular Christmas tree choice. For those who prefer a more fragrant tree, the Douglas fir, with shorter soft needles and a dense, easily shaped appearance, is another fine choice. But beyond their affinity for making the season bright, these trees are popular for something else: They're ideal for homebuilding.  

Dramatic lumber price increases beginning last year added nearly $30,000 to the price of a new home build. According to the National Association of Homebuilders (NAHB), prices are down considerably from their peak this past May but trending sharply up again.  

Meanwhile, families out in search of the perfect Christmas tree this year have been met with a reduced selection and price increases averaging anywhere from 10% to 20%.  So what's behind the Christmas tree shortage? Does it have the same cause as the lumber shortage, and is it bad news for homebuilding in 2022? Let's take a closer look.

Oh Christmas tree, where art thou?

It's easy to assume the pandemic is to blame for everything supply related, but there's more at play with Christmas trees. Droughts and fires are a factor , but it takes years for trees to reach their most desirable Christmas tree heights. That means the repercussions of unfortunate events can impact the industry for many years.

And in this case, according to The National Christmas Tree Association, the financial crisis of 2008 plays a large role in today's shortage. Because the crisis meant many growers couldn't afford to plant that year, the Christmas tree oversupply of the past isn't happening this year. And sadly, the repercussions of this year's droughts will likely be felt for several years as well.  

Lumber has its own problems 

Like with the Christmas tree shortage, several issues have come together to create the lumber shortage. But for the most part, these are separate issues from those facing Christmas tree farmers.

Demand has been a big factor. During the pandemic, many people decided they needed more space. For some, that meant leaving the city behind and heading to the suburbs. Others felt cramped working from home and/or homeschooling and decided they needed a bigger home. Interest rates also fell, inspiring even more people to buy or build, and many found themselves with more free time for DIY home projects. And of course, amid all this demand, pandemic shutdowns led to reduced lumber processing.

Trade with our neighbors to the north is another significant issue and the one where most of the action is right now. According to Fastmarkets, 25% of the lumber we use in the U.S. is imported from Canada . And in 2018, the Trump administration imposed tariffs on lumber and steel from Canada. According to CoreLogic, this led to more modest price increases at that time. But unfortunately, the aforementioned pandemic demand soon followed, and the tariff/demand combo created the dramatic prices we've been seeing since.

What will determine lumber's future?

So if prices had begun declining, why are they heading up again now? Nearly a month ago, the Biden administration more than doubled the existing Canadian tariffs to 17.99% . Bipartisan efforts are currently underway to try to reverse or at least reduce the tariff to help with housing affordability as well as the homebuilding industry and the economy in general. Investors will definitely want to keep an eye on this situation going forward.

And if you have a live Christmas tree in your home this holiday season, please enjoy -- and rest assured that you have in no way contributed to the lumber shortage.

Nell McPherson has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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