Smaller Canadian producers hit with mounting pressure as new US levies cloud the housing outlook
Canada’s homebuilding outlook was already grim – and the fresh round of US tariffs introduced last week is only complicating that picture further, according to a wood markets expert.
Small and medium-sized wood product manufacturers, which produce a significant supply of Canadian construction and homebuilding materials, are facing existential threats from the wave of levies announced by US president Donald Trump, Vancouver-based analyst Russ Taylor told Canadian Mortgage Professional.
Raw softwood lumber was already heavily restricted, and new 50% Section 338 tariffs are targeting about $4 billion in value-added and engineered wood products including plywood, wood mouldings, particle board, and wood-fibre exports.
“It’s going to really put the pressure on the small guys with these 50% tariffs,” Taylor said. “If they’re doing a lot of business with the US, they’re going to have some problems going ahead.
“The big guys can always find a way to borrow money or whatever to survive, but not the little guys. And that’s the sad part.”
Supply crisis could rumble on as trade war ramps up
The current crisis arrives after years of pain for the forest industry in British Columbia, which could buckle even further from the US making it more difficult to supply buyers across the border.
“We’ve seen such a hollowing-out: 20-odd mills closing in the last four years, after another 30 mills closing before that,” Taylor said. “And that’s going to undermine the confidence in the housing market.”
Some regional housing markets have seen supply improve in recent years amid a wider cooldown on the purchase side, but the pace of housing starts is currently nowhere near the level experts say is needed to improve the long-term inventory crisis.
In July, actual monthly housing starts fell by 19% compared with 12 months prior in centres with a population of 10,000 more, according to Canada Mortgage and Housing Corporation (CMHC), with the total monthly seasonally adjusted annual rate of starts also slipping.
And while prices in Toronto and Vancouver have fallen, the national housing agency doesn’t see the current condo market fiascos in those cities improving affordability or supply in the long run, because developers are putting projects on ice or stepping away entirely.
No sign of a silver lining for Canadian homebuilders
Homebuilder sentiment, meanwhile, remains low. The Canadian Home Builders’ Association (CHBA) described “bleak conditions” from its first-quarter survey of builders this year, with its multi-family index hitting a record low for the third consecutive time.
In Ontario and British Columbia in particular, the association, said, sentiment remains “extremely negative” on the multi-family side, with the single-family index also hovering just 1.3 points above the all-time record low for builder confidence.
Taylor sees the latest escalation in the US-Canada trade war spelling further bad news for the housing and homebuilding outlook on both sides of the border.
“Whenever there’s uncertainty, everyone sort of stops,” he said. “The buyers stop, the sellers stop and wait. We’ve a little more price volatility, and some producers may be able to capture higher prices and absorb some of the duties going across the border. But other products, probably not.”
Economists have also highlighted risks to the interest-rate outlook. The Bank of Canada is expected to keep its benchmark rate on hold when it meets this week, meaning variable rates will likely stay unchanged for now – but fixed rates could be set for a prolonged upward climb as bond market jitters continue to roil US Treasuries.
Builders typically take a hit when confidence in the housing market and economy drops – and while experts don’t see the current trade dispute escalating into a full-blown meltdown for the Canadian economy, it’s still expected to put jobs at risk in tariff-impacted industries, particularly in Ontario.
Taylor sees that causing further problems for smaller producers of construction materials. “People in Canada are going to be afraid for their jobs. They aren’t going to be looking for big outlays of cash,” he said. “It’s just a period of extreme uncertainty – and it’s the little companies that have worked so hard to stay alive that are now under threat too.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
