DOVER, Del. (AP) — The price of lumber in the United States skyrocketed in early May, when lumber cost as much as $1,700 per thousand board feet.
However, Kolby Dukes, a manager at Dukes Lumber Co. in Laurel, is hopeful for decreased pricing in the fall and more stability in the lumber industry.
“In terms of lumber future pricing, which is the best way to generically describe what lumber prices were pre-pandemic, they were anywhere from $350 to $400, and that’s for a thousand board feet of lumber,” Mr. Dukes said. “They got up as high as $1,700 in May.
“It is absolutely ridiculous. We’ve never seen that kind of fluctuation. For us, things have been very normal for 15 years. It’s not been wild swings like this.”
A mixture of issues seem to have driven the higher lumber prices, such as pandemic supply chain constraints, the permanent closure of many mills during the Great Recession and a greatly increased demand for new homes.
Additionally, many lumber supply companies complain they are struggling with getting materials due to a worker shortage, with many truck drivers stepping away from their jobs.
Mr. Dukes said things are starting to get better, but lumber still costs twice as much as it did prior to COVID-19.
“The market is still very high, and people are still building, and I think that demand has allowed prices to stay elevated for so long,” he said. “I don’t know as an industry as a whole if the demand has slowed down, but we’re still very busy. But it could be because the market has started to soften.
“Overall, the thing to note is, everybody is tickled because lumber has fallen $1,000 in the past 10 weeks. But the thing to note is that lumber used to be $350, and now, it’s trading at $700, so lumber is double what it was pre-pandemic, and everybody’s tickled to death. Crazy.”
Mr. Dukes added that oriented strand board is one of the key building materials that hasn’t dropped in price yet. The International Association of Certified Home Inspectors said OSB has become more popular than plywood in North America.
The price of OSB per sheet 18 months ago was about $9, but it has risen dramatically to about $63 per sheet.
Prices for finished products like doors and windows have also gone up drastically.
As far as the price of lumber is concerned, it went through the roof May 7 and is now on the decline but still far above pre-pandemic levels.
“We saw a spike back in the month of May, which bled into June, and lumber got extremely expensive, but we are now seeing prices come down,” said Mr. Dukes. “But May 7 is kind of when it all peaked, and since May 7 — when it was $1,700 (for a thousand board feet of lumber) — now lumber futures are at $700, so it has dropped over 50% in the futures market.
“Now, the futures market takes a long time to translate into lumber getting to our yard and the consumer buying it. What they’re selling is ... their future production, so they’re selling what they’re going to make in September and October,” he added.
“The price of lumber has dropped by $1,000 on what will be produced in September and October, so we expect to see prices falling rapidly over the next couple months.”
NEW-HOME SALES TAKE DIP
Amid the uncertainty of the lumber market, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau said that sales of newly built, single-family homes fell 5.9% in May to 769,000.
Meanwhile, the median sales price for a new home in May was $374,400, up 18% from $317,100 in May 2020.
Robert Dietz, chief economist for the National Association of Home Builders, said the slowdown in sales came from a combination of factors.
“While higher prices have shifted some buyers to the sidelines, NAHB survey data indicates that approximately 20 percent of builders have limited sales activity in recent months in order to manage supply chains of materials and labor availability,” Mr. Dietz said in a press release.
“Entry-level buyers are being most affected by higher prices. Just a year ago, shares of sales priced below $300,000 accounted for 44 percent of sales, while this May it has dropped to 26 percent.”
The number of new homes sold for which construction hasn’t started yet is up 76% over the last year. The count of new homes sold that are completed and ready to occupy is down 33%, NAHB said.
Soaring lumber prices are adding thousands of dollars to the cost of a new home, excluding millions of potential homebuyers and impeding the residential construction sector from moving the economy forward, according to the association.
Alicia Huey, a high-end custom homebuilder from Birmingham, Alabama, and second vice chairman of NAHB, said that the price of her lumber framing package on an identically sized home has more than doubled over the past year, from $35,000 to $71,000.
“This increase has definitely hurt my business,” she said. “I’ve had to absorb much of this added cost and even put some construction on hold because I would be losing money by moving forward.”
The same crunch is being felt locally. Maria Lopez had been trying to have a home built in a 55-plus community in north Dover. However, she said the lumber price increase pushed the cost up around $50,000 — a price tag she could not afford.
“It’s really a shame,” Ms. Lopez said. “We thought we had found the perfect home, and then, this lumber shortage happens and forces the home that we were going to have built out of our price range. But we’re not giving up yet. Hopefully, the price of lumber and building materials will fall back down to a more reasonable cost soon.”
After May’s spike in lumber pricing, NAHB Chairman Chuck Fowke, a custom homebuilder in Tampa, Florida, called on the federal government to lend some assistance to control the price increases.
“NAHB is urging President (Joe) Biden and Congress to help mitigate this growing threat to housing and the economy by urging domestic lumber producers to ramp up production to ease growing shortages and to make it a priority to end tariffs on Canadian lumber shipments into the U.S. that are exacerbating unprecedented price volatility in the lumber market,” Mr. Fowke said in a press release.
He added that May’s price spikes not only sidelined buyers during a period of high demand, but they caused many sales to fall through and forced builders to put projects on hold at a time when home inventories were already at a record low.
Mr. Dukes said most people building new homes in Delmarva are seeing a financial trade-off.
“People are coming in, and the price of their home has gone up by $40,000 or $50,000 (due to the lumber rates), and they don’t care because their interest rate is so low that, over 30 years, they’re going to save $60,000 compared to what rates were,” he said.
“So to them, they’re getting the same or maybe even a little better deal over the lifetime of their mortgage based on the interest rate.”
WHY NOT CHANGE BUILDING MATERIALS?
While builders have been grappling with record-high lumber prices and supply shortages over the past year, few are willing to switch away from traditional wood.
A June survey for the NAHB/Wells Fargo Housing Market Index revealed several reasons for that, but one stood out above the rest.
More than four out of five builders (82%) cited a lack of workers and subcontractors with the necessary experience as a significant barrier to switching away from wood framing, which remains the dominant construction method for single-family homes in the United States, accounting for 91% of new homes completed in 2020.
The study indicated that the typical framing crew is not ready to immediately start building homes out of concrete or steel.
After a lack of experienced workers, the No. 2 hurdle to switch from wood framing was the relative cost of materials, cited by 42% of builders. Not only have materials like steel and concrete tended to be more expensive than lumber historically, they have also recently been subject to their own shortages and price hikes.
The costs of redesigning and reengineering homes to conform to a new construction method, buyer resistance and difficulty obtaining inspections and approvals from local building departments were also each cited by more than 25% of homebuilders as major barriers to switching away from wood framing.
Only 5% of the builders indicated that none of the potential problems listed in the survey was a significant barrier.
However, if lumber prices continue to fluctuate, some builders are considering moving away from wood. In particular, 17% of the builders surveyed are considering switching to steel, 16% to structural insulated panels, 14% to insulated concrete forms and 8% to concrete masonry.
Mr. Fowke said something is going to have to give regarding building materials — and soon.
“Clearly these price increases are unsustainable, particularly in light of a continued housing affordability crisis,” he said. “Given this ongoing period of high demand, the Commerce Department should be investigating why output from lumber producers and lumber mills are at such low levels.”
Mr. Dukes agreed that it’s all pretty difficult to figure out.
“I don’t fully understand it all,” he said. “Demand is certainly high, and interest rates are low. To us, these prices don’t make sense. I’ve got projects at home that I’m not doing because I’m not going to pay this much for lumber because I know what it should be — and it shouldn’t be this.”