‘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 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 who are planning home remodels pause.
“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 national franchise 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.
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 that 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 costs over 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 output, says Jerry Howard, CEO of the 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 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.
David Logan, the NAHB’s director for tax and trade policy analysis, responded by noting that “capacity is not the same as output.”
On a seasonally adjusted basis, the high point for U.S. sawmill output was May 2018.
“Output is down 8% since that time despite substantial price gains,” he says.
According to the Federal Reserve data, the seasonally adjusted rate of sawmill output in March (the most recent available) was 4% higher than that recorded in March 2020.
Homebuilding picks up, but construction hampered
Although mortgage rates hover at historic lows, potential buyers are confronting low housing inventory and higher prices, an issue that has plagued house hunters in recent years and shows no signs of letting up for first-time homebuyers.
Low inventory was an issue even before the pandemic, as homebuilders that were pummeled by the housing crisis still hadn’t matched production levels to demand. Now, the supply shortage is weighing on the housing market even further amid increased competition.
Builders have also been forced to contend with a surge in lumber prices during the pandemic that made homes more expensive. They also continue to face other supply constraints that may further hamper or postpone construction, according to Nancy Vanden Houten, lead economist at Oxford Economics.
“Homes under construction now aren’t reflecting the drop in lumber prices over the past few weeks, but instead prices from earlier this year,” Vanden Houten says. “Assuming lumber prices stay where they are or fall further, that would eventually flow through and result in more homebuilding as price pressures ease.”
U.S. homebuilding picked up in May, but construction continued to be hindered by expensive lumber and shortages of other building materials.
In May, home construction climbed 3.6% to a seasonally adjusted annual rate of 1.57 million units, the Commerce Department reported last week. Permits for future homebuilding, which are viewed for activity ahead, declined 3% last month, to a seasonally adjusted annual rate of 1.68 million units.
Although home construction is expected to be flat in the second half of the year, it is till on track to rise 14%, to 1.6 million, in 2021, which would be its strongest pace since 2006, Vanden Houten says.
The recent plunge in lumber prices, which have declined more than 40% from the record set in early May, may boost homebuilders’ sentiment in July, she added.
“As lumber prices continue to fall, that may allow people to move forward with home builds and renovations,” Vanden Houten says.
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 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 market 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, a price that has been mostly passed on to customers, he says.
The business has also struggled to find workers even though it raised hourly wages, according to Ivancic. He blamed the worker shortage 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, Vanden Houten says.
“Many Americans who lost their job in the pandemic appear to be reassessing what they want to do moving forward,” Vanden 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,” Vanden 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.”
This article originally appeared on USA TODAY: Lumber prices: Home renovations, building are delayed amid COVID
