An increase in U.S. housing construction is expected to raise significantly the price of lumber by the end of the year, offsetting the depressing effect China's recent downturn in property investment has had on lumber demand.

Capital Economics, a London-based financial research consultancy group, expects prices to increase almost 30 percent, from $313 per 1,000 board feet to $400, by the end of 2014. The group attributes the expected rise to increased demand in the U.S. housing market.

Lumber's recent price weakness stems partially from China slowing down property investments. China’s “reduction in commodity-intensive activity” had a hand in the fall in lumber prices, as well as construction metals, because Chinese demand accounts for roughly 10 percent of North American production exports, Capital Economics said in a note Friday.

Lumber prices fell in May for the first time in two years. 

Construction is revving back up in the U.S. but slowed considerably because of the unusally cold winter, hitting a nearly two-year low in March.

While the report states the future of the U.S. housing sector looks positive and a quarter of the mills that closed in 2004 have reopened, “a significant amount of capacity is likely to have been permanently lost, as mills fell into disrepair and skilled labour moved onto other jobs. This will prevent output quickly ramping back up to 2004 levels.”