The price of lumber has skyrocketed during the pandemic, but low interest rates are keeping contractors and do-it-yourselfers busy at a time when suppliers are scrambling to keep building materials in stock.
It’s a situation caused by high demand -- the demand for residential housing and other construction -- coupled with a supply crunch, that has caused lead times to dramatically increase, for a variety of products. Mills have been working to operate at capacity, but some were shut down periodically during the pandemic, and now they are playing catch-up. And the demand for remodeling projects hasn’t gone away, as home-bound workers stare at their walls or decks and consider upgrades.
“We've been seeing just astronomical price increases, and continue to see those price increases on a daily basis, if not even sometimes on an hourly basis,” said Trent Peabody, president of Lumber Mart Inc. “We're in uncharted territory when it comes to the historic levels that we're seeing now.”
According to the National Association of Home Builders, the price of lumber has tripled since April 2020. This adds an estimated $35,000 to the price of a single-family home. Framing lumber is being sold at around $1,200 per thousand board feet, up 250% since last April, when that amount was selling at about $350. But Peabody said that estimate doesn’t take into account other products needed to finish a home, products that are also becoming scarce and likely are sending the price of a new home even higher.
“The reality is that's just on the material side of things,” Peabody said. “Try to finish these homes out. The number is actually greater than that.”
Structural panels, like oriented strand board, have seen prices jump, giving some customers sticker shock. OSB is selling at over $40 a panel when it sold for $7 a few years ago. Peabody calls his stock of OSB “piles of gold,” because of the price. And much of what he has on hand at his East Grand Forks location has already been sold for ongoing projects.
Price jumps haven’t been limited to lumber. Various resins, used in products from paint to PVC pipe fittings, are spiking after a February deep freeze hit Texas and other southern states, where those products are manufactured. They’re just now getting back up and running, Peabody said. The difficulty in securing supplies also extends to shingles. Shingle manufacturers, who use petroleum for their products, are limiting the number of colors they are producing to only the most popular.
Peabody likened the situation to Henry Ford’s famous saying of his Model-T cars, that “you can have it any color you want, as long as it’s black.” Lumber Mart has sourced pallet after pallet of shingles, something they would never have needed to do two construction seasons ago. It’s part of trying to stay ahead, and meet the local demand.
High cost-high demand
Steve Mundahl, general manager and vice president of Bergstrom Electric, said people are looking to reduce the budget and scope of their projects. However, by the time they get redesigned and sent out for bidding, the price of material has increased, and they are ending up with a slimmed-down project that comes with the original price tag.
“You aren’t getting your money’s worth, in other words,” Mundahl said.
Despite the cost of materials, new developments are popping up around Grand Forks. Through March, building permits have been issued for 11 new houses and 12 townhouses, and more were issued in April. A city report notes this is the highest number of new home starts for the first quarter, compared to the last five years, when the average was seven.
The same goes for sales of existing homes, said John Colter, with the Grand Forks Association of Realtors. In March this year, 130 homes were sold in realtors’ regional service area, including 79 in Grand Forks. To Colter, there’s no question that low interest rates are driving all the buying, and he believes the market will stay active for some time.
“I just don't see the market slowing down right now,” Colter said. “I think it's going to be hot throughout the summer and maybe into the fall.”
What to do?
NAHB, in an April 28 release, said its team is working to address the soaring cost of lumber, by lobbying Congress and mill operators to increase production. They mills, the organization says, were caught off guard by the surging demand, after they had reduced production due to stay-at-home orders in some states. Tariffs on Canadian lumber coming into the country are another issue, and the group is asking lawmakers to take action to remedy the issue.
For his part, Peabody said he is writing a letter to contractors his company supplies, explaining what lumberyards are seeing in the markets, and what could possibly correct the problem. And it could be any number of issues: interest rates need to rise to the point where building slows down, or supplies of structural panels dry up to the point where building has to stop.
“There's just such a combination of things that has led to a perfect storm,” Peabody said.
And then there’s the pandemic. Peabody said a cabinet maker that supplies his company had a complete shut down, which added another month to already lengthy lead times. Transportation has also been a problem. Some trucking companies hired by mills refuse to deliver to areas with higher rates of COVID-19, including a company that would come to Grand Forks, but not East Grand Forks. Peabody said staff took the shipment over in Lumber Mart’s trucks. It’s the “perfect storm” that is keeping prices high, without a clear picture of when things will change.
“It's amazing,” Peabody said. “I've been doing this a long time and my jaw just kind of drops when I look at the new numbers, and what we've got to sell things for. I just shake my head.”