Rising lumber costs jack up housing prices

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By Sean Ryan

The price of lumber products has doubled in Wisconsin over the past two months, pushing against builders’ efforts to rein in housing prices.

“I don’t like it,” said Scott Thistle, president of Brookstone Homes Inc., Oconomowoc. “It definitely forces the price of a house to go up. There’s no doubt about it. But houses today, even with the price of lumber, are still a much better value than they were in 2003 and 2004.”

The price of oriented strand board, an essential material for walls and floors in housing construction, has doubled in the past 60 days, said Eli Bliffert, vice president of Bliffert Lumber and Fuel Co., an Oak Creek-based supplier with outlets throughout southeastern Wisconsin. The near shutdown of housing construction in 2009 forced sawmills to scale back or close, he said. And they have not yet ramped up production to keep pace with the increase in demand for OSB this year, he said.

“They’ve been losing money for so long,” Bliffert said, “that they’re going to continue to run lean and make more profit.”

Bliffert said his company has increased its selling price because of the higher price it pays for the material. The company is selling OSB wall sheeting for around $500 per 1,000 square feet, Bliffert said. That seems drastic to builders who were paying half that amount two months ago, he said, but the price of OSB was ridiculously low in 2009 because there was no demand.

“It’s absolutely a price correction, and it needed to happen,” Bliffert said. “Everybody knew it would happen at one point.”

Thistle said he realizes the cost of lumber was extremely low last year, but it is still scary when sudden price increases add $5,000 to the cost of building a house. The jump contributes to the trend of homes costing more to build this year than last, he said.

“It was almost sort of a market fakery,” he said of 2009 housing prices, “because people weren’t buying anyway, so it didn’t matter what the price was.”

The increase is likely to drive homebuyers, who now prefer cheaper houses, to either build smaller or cut more amenities, such as granite countertops in the kitchen, said Tim O’Brien, president of Tim O’Brien Homes Inc., Waukesha. He predicted the cost of building a $175,000 house would increase by up to $4,000 in the next few months because of the lumber costs.

“Can we pass on price increases at this point in time?” O’Brien said. “Very, very difficult.”

Bliffert predicted OSB prices would peak and begin to decline within a month. To put things in perspective, he said, builders should remember that even after the price spike, OSB prices are no higher now than they were in 2002.

“It’s the same old thing,” Bliffert said. “Everybody trying to have less inventory and more cash. The price spikes, they cause some pain in the beginning, but then it gets tempered out.”

Even with the price of lumber rising, Thistle said, housing prices are still lower than before the housing market bust.

“They’re going out and they’re looking at a house now,” he said of buyers, “and they’re saying, ‘That house is $190,000. Back when we looked at that house in 2003, it was $220,000.'”

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