In mid-April, the Harvard Joint Centre for Housing Studies (JCHS) released its Leading Indicator of Remodeling Activity (LIRA) update, forecasting R&R growth—in dollars terms—averaging ~+1.6% per quarter between now and Q1/26. This projected growth comes after a modest pullback in R&R spending in 2024 (~1.7%) and will be welcomed by North American solid-wood producers given expected declines in demand from new residential construction in the coming quarters.

The JCHS’s outlook reflects what we have heard from wood products manufacturers so far this earnings season. The demand boost around the traditional spring building season has lagged expectations from three or four months ago, but there has been a discernable uplift in activity among treaters in particular. Treaters were notably absent from the market last spring, contributing to multi-decade lows in SYP lumber prices. Several producers posited that the declines in R&R demand in 2023 and 2024 likely reflected the impact of some pull forward during the peak COVID years (2020 to 2022), but they believe this has been worked through and that demand prospects will improve meaningfully once current macroeconomic headwinds blow over.

In the near-term, elevated mortgage rates, weak existing-home sales and declining consumer confidence continue to hamstring R&R demand. We do not anticipate a major improvement on any of these fronts as the year progresses. Declining sentiment around the R&R market was captured in the NAHB/Westlake Royal Remodelling Market Index: It slipped by 5 points q/q to a reading of 63 in Q1; however, the recent q/q decline shows that some of the early year enthusiasm about a potential mid-single-digit recovery in R&R demand has dissipated.

Furthermore, recent pricing trends persisted in North American lumber markets over the past month, with S-P-F prices continuing lower while SYP prices moved higher. S-P-F 2x4s are now trading at $468—down from a peak of $570 in March—while SYP 2x4s have climbed to $460, their highest level ytd and up from a low of $364 in January. A modest seasonal uptick in demand from treaters appears to be one of the catalysts creating SYP price improvement, while the pause on tariffs—the threat of which had previously boosted S-P-F prices—has now precipitated a drop in S-P-F lumber pricing.

As we’ve highlighted exhaustively over the past several months, duties on Canadian lumber exports to the US are scheduled to more than double later this year, and there is still potential for incremental lumber tariffs following a Section 232 investigation (there is the potential for tariffs to extend to panels, etc., but even producers don’t have any clarity). Barring an unlikely spike in lumber demand, many Canadian sawmills are likely to discover that the economics of selling lumber into the US no longer work (unless prices move substantially higher—but that will be driven by closures in Canada).

For Canadian producers, do alternative markets exist, or could a surge in Canadian homebuilding replace some of the lost volumes to the US? In short, there are no easily accessible markets that come close to the size of the US and that can be supplied by Canadian mills. Looking at wood-consuming regions such as Europe, challenges pertaining to imperial versus metric sizing and freight/geographical limitations would make market penetration, at scale, highly unlikely. With respect to the Canadian housing market, its overall size pales in comparison to that of the US, with total lumber demand from residential construction at ~17Bbf in the US last year versus less than 2Bbf in Canada. Further, Canada’s bias toward multifamily starts (at ~70% of the total Canadian market compared to ~30% of the U.S. market) would moderate the lumber demand boost from an (unlikely) uplift in housing starts over the coming years. In brief, the Canadian industry has evolved over decades to primarily supply the US market, and, while dramatic policy shifts south of the border may, by design, dramatically alter this trade flow in short order, accessing and developing new alternative markets will be a slow, arduous process.