Tuesday, July 27, 2021

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    ‘They’re hitting the pause button’: Lumber price roller coaster forces Americans to delay costly renovations

    When Allison Glass bought a 30-year-old home in Winfield, West Virginia, last June, she she knew she’d have to update the kitchen.

    She thought the project would cost less than $10,000. But surging lumber prices during the pandemic forced her to raise her estimate to $15,000.

    The price of lumber, which shot up to $1,600 per thousand board feet in May from $400 early last year, is making renovations more expensive — especially projects that involve kitchens cabinets, hardwood floors and additions that require framing. Labor shortages and supply-chain snags exacerbated by the pandemic are driving up those prices, and giving Americans pause about what work they can afford. 

    “We are a single-income family,” says Glass, a stay-at-home mother of two whose husband works as a high school counselor. “And we have to be really careful with where we spend our money.”

    Instead of buying all new cabinets, Glass decided to repurpose some of her old ones through a company called N-Hance. The company helped her keep the bones of her cabinets while swapping out cabinet faces and painting them. Her total cost came to under $6,000.

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    Lumber prices fall but customers wait

    Even as prices for lumber futures ease following their peak in May, customers worry about committing to new projects, says Chuck Fowke, a builder of custom-designed homes in Tampa, Florida, and chairman of the National Association of Home Builders (NAHB).

    Three of Fowke’s would-be clients, who went through the design phase, have not signed contracts.

    The recent decline in the price of lumber futures might also be adding to the confusion, he says.

    “They’re looking at the commodities market almost like Las Vegas and they were looking at prices that were $1,600 per board foot,” he says. “Now they’re predicting that in September or October, those prices are going to fall to the $800 and $900 range.”

    “They’re not going to build now,” says Fowke, who notes that his customers worry that if they pay the high lumber prices now, they’ll regret it if supplies start flowing and costs ease further.

    Fowke says once his current projects are completed, he may not build a home for the first time in 42 years.

    Challenges remain for builders

    Falling futures prices for lumber have not lowered costs for builders who work with lumberyards that are saddled with inventory they bought at a higher prices.

    Fowke says while many builders are getting permits to construct homes based on the high demand for housing, they have stopped work to see what happens with prices and supplies.

    The surge in lumber in the past year has added $36,000 to the price of an average new single-family home, according to the NAHB.

    Lumber producers do not seem in a hurry to increase their production, says Jerry Howard, CEO of NAHB.

    “Right now, they’re not operating at full capacity, causing false increases in prices, causing delays and causing people to back out of the market,” he says.  “They’re making money hand over fist right now and they’re not going to invest in more people or capital improvements in their plants.”

    Heather Stegner, a spokeswoman for the American Wood Council, a trade association that represents North American wood products manufacturers, said various issues that have caused an imbalance between lumber supply and demand. Those problems include  the permanent closure of mills during the Great Recession, pandemic-related supply chain constraints and explosive demand for housing.

    Still, she says she expects things to get better.

    “Sawmill capacity increased by 1.4 billion board feet in the last year,” she says, adding that another 1.6 billion board feet could come online in the second half of 2021.

    Lumber mills face shipping, labor constraints 

    Some mills, however, remain under pressure even with the recent decline in lumber prices. Dan Ivancic, director of marketing at Advantage Trim & Lumber Company, says the business hasn’t felt any relief yet.

    A large portion of its business is in the decking market, which depends on a homeowner building the frame out of pressure-treated pine. That has seen significant price increases, which has resulted in many customers deciding to wait on building their decks, Ivancic says.

    “At the start of the pandemic, we saw a huge surge in demand for people wanting to do outside projects and create a backyard oasis with decks,” he says. “But with all of the staff reductions due to COVID restrictions, a lot of the mills weren’t able to produce the same amount and it limited … production.”

    Their most popular specie of wood is Ipe, an exotic hardwood that is naturally resistant to rot and decay that is now much more expensive to purchase out of South America, due in part to higher fees at shipping ports. Overall, the cost of purchasing the decking wood has jumped by 80% for the company, which has been mostly passed onto customers, he says. 

    The business has also struggled to find workers even though they raised hourly wages, according to Ivancic, who blamed it in part on the extended $300 federal unemployment boost.

    To be sure, a confluence of factors have played a part in a labor shortage beyond enhanced unemployment, including child-care challenges and lingering COVID-19 concerns, according to Nancy Vanden Houten, lead economist at Oxford Economics.

    “Many Americans who lost their job in the pandemic appear to be reassessing what they want to do moving forward,” Houten says.

    She pointed to the Labor Department’s monthly Job Openings and Labor Turnover Survey, or JOLTS report, which showed that more people voluntarily left their employment in record numbers in April.

    “This suggests people want a different job. If you quit, you’re not going to get unemployment,” Houten adds. “The unemployment boost is just one piece of the puzzle, but it’s not the primary driver.”

    Still, some lumber mills don’t expect to get a reprieve from lower lumber prices anytime soon. 

    “I don’t foresee prices stabilizing more until supply and demand issues both level out,” Ivancic says. “We won’t be able to do that until the unemployment ends in September and even then it will take a while for businesses to catch up.”

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