Higher lumber costs hammer builders

Published: March 12, 2010
Tags: Associated General Contractors of America, lumber prices, National Association of Home Builders, Random Lengths, Rottlund Homes

By Brian Johnson
Dolan Media Newswires

Minneapolis — Rising lumber prices are putting the wood to homebuilders who are still smarting from the industry’s worst downturn in decades.

Lumber costs hit a four-year high in February, although prices have been coming back to earth in recent weeks, according to the National Association of Home Builders.

Citing numbers from Random Lengths, a Eugene, Ore.-based tracker of lumber prices, the homebuilders association reported the composite cost of lumber as of Feb. 19 was $317 per 1,000 board feet, up 26 percent from the start of 2010 and the highest number since July 2006.

As of March 5, the price leveled off a bit at $303 per 1,000 board feet. Still, prices are up from historical markers, and “it’s just another blow for the builders,” according to Bernard Markstein, a senior economist with the National Association of Home Builders.

“It’s not like they are sitting on fat margins,” Markstein said in a phone interview. “In some cases, they are building less than break-even or even at a small loss,” so any price increase “is a kick in the teeth to them.”

Decreased production in lumber mills, cold and wet weather in the southern U.S., higher demand from paper mills, and fees on lumber from Canada are among factors driving up prices, according to the homebuilders association.

The national trends are consistent with what’s happening in Minnesota, according to Mike Swanson, Minnesota division vice president and corporate risk manager for Rottlund Homes.

Lumber mills have cut production and have had longer periods of inactivity for the past year and a half or so, Swanson said, while activity in the homebuilding industry has picked up in recent months.

“People are starting to build more across the nation. It’s simple supply and demand,” Swanson said.

The result: Builders are paying up to 50 percent more compared with when the prices were at their low point, Swanson said. He said that adds $1,500 to $2,000, on average, to the cost of a multifamily unit, and the effect on single-family prices is “pretty much double that.”

Ken Simonson, chief economist for the Associated General Contractors of America, said the trend in lumber prices is consistent with what has been happening with a broader range of building materials, including gypsum, copper and steel.

He said the lumber price increase reflects a combination of a rise in demand and anticipated demand.

“There is a strong upward trend in starts and perhaps more significantly in the permits being taken out, which is generally a reliable indicator of housing that will be started in the near term,” he said.

“As we head toward spring and the traditional homebuilding or homebuying season, I would expect quite a spike in lumber prices” if permits continue to rise.

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