The “unprecedented spikes” in lumber prices have added more than $24,000 to the average price of a new single-family home, and nearly $9,000 to the cost of a multifamily home the past year, according to the National Home Builders Association.
Prices compared to a year ago were up 193% last week for some items.
Credit: STAFF
Credit: STAFF
“And prices will be higher next week than they were this week,” Alan Pippenger, president of the Requarth Co., a Dayton supplier, said Thursday.
The cost increases are due largely to an unexpected domino-effect triggered last spring by the COVID-19 pandemic, local officials said.
The hikes have led to some delays in single-family and multifamily residential developments. They also have caused shifts in business practices, including limiting customer purchases and buying truckloads of product without knowing the specific prices.
“We’re seeing precipitous increases in the cost of lumber on a nightly, weekly, monthly basis to the point where almost every construction contract that’s being written has contingencies associated with the price of lumber,” said John Morris, president of the Ohio Valley Associated Builders and Contractors.
The change in contract language started several months ago, said Morris, whose organization focuses on commercial construction and has about 32,000 members in Southwest Ohio and Northern Kentucky.
Now, he added, it’s “constant and consistent” and has “filtered down all the way to your average home handyman because the price fluctuates on a week-to-week basis.”
Based on 110,000 board feet of random lengths 2x4s, the Chicago Mercantile Exchange recorded the following prices: April 15, 2020: $324; Sept. 14: $984; Oct. 30: $495; Feb. 22, 2021: $1040; and April 15: $1238.
DIY project impact
The price surge has been more acute with commodity lumber items, often used with home improvement projects, Pippenger said.
This includes products such as 2x4s, 2x6s and plywood. Last year at this time, an eight-foot 2x4 cost about $3, but is priced at nearly $9 today, he said.
“For most do-it-yourself projects, what’s really been affected is people building fences and decks. Those tend to use a lot of commodity lumber items,” Pippenger said.
There has been a short supply of preservative-treated lumber used in decks and fences because manufacturers expected the demand to fall with the pandemic, he said.
“But instead, people decided last summer that since they couldn’t take a vacation, they were going to build a deck,” Pippenger added.
Cost increases have been less severe with non-commodity products often associated with home remodeling projects, such as windows, trim and cabinetry, he added.
Annual home improvement spending this year is expected to grow from 1-13% in 42 major metropolitan areas, while declining at 1.5% or less in four of the 46 metros tracked, according to the Joint Center for Housing Studies of Harvard University.
Fourteen metros are projected to see “robust growth” above 6% this year, while an additional 17 metros are set for moderate gains between 3-6%, the center said.
Reasons for the surge
A combination of factors — many coronavirus-related — have played a role in the price surge, local industry professionals said.
Some lumber mills shut down last spring. There is a shortage of truck drivers to haul the products. Interest rates are low, leading to a strong new homes construction market. And there has been a rise in home-improvement projects.
After the pandemic hit, many lumber mills closed, leading to a labor shortage to fill jobs, local officials said.
Meanwhile, there was “an unforeseen surge in the nationwide housing market” aided by low interest rates, said Eric Farrell, executive director of the Home Builders Association of Dayton.
“I think when the pandemic happened probably few expected (housing) to be a leader in the national economy and accelerant and kind of carry the national economy – really for the last 12 months,” he said.
Total housing starts last year were up 7% over the 2019, with single-family units rising 11.7% and multifamily starts down 3.3% from a year prior, National Association of Home Builders records show.
Locally, permits for single-family homes, condominiums and apartments rose 2.4% from 2019 to last year, according to the HBAD.
“Nobody knew that residential real estate and remodeling was going to go off the charts,” said Charles Simms, president of Charles Simms Development.
COVID stimulus packages “gave millions to Americans to improve their homes because they couldn’t leave their homes” for periods of 2020.
Pippenger said the lumber rate hikes are part of “this rolling problem – partly the pandemic, partly this high demand for housing.
“With low interest rates, people are buying houses,” he added. “For the commodity materials, it’s supply and demand. The demand is really there and it’s draining our supply.”
Supply shortages
Since last summer, Pippenger said the 161-year-old business started by his great-great-grandfather has been limiting quantities for certain products to service longtime customers.
“Some of those orders I turn down,” he said. “Because I need to make sure that I have my regular customers covered with the material that they need.”
Pippenger said a vendor wouldn’t give his business the cost on a large shipment of lumber until it arrived in Dayton. The vendor called it “priced time of shipment,” a “new word in my vocabulary”, Pippenger said.
“So we were buying truckloads of lumber not knowing what they were going to cost until a month later – just to have material,” he said.
With record-high prices, suppliers are less likely to have an excess of inventory, Morris said.
“The lumber is being bought on an as needed basis,” he said. “So, if you need any large quantities, there’s going to be a lag time.”
The supply shortage is “causing build times” for new homes “to be definitely longer – 20-30%” in some cases, Simms said.
Some new home starts are also being delayed, but Simms said his company has developments under construction in Beavercreek, Centerville, Springfield and Lebanon.
The new home price increases in the Dayton area due to lumber costs are below the national average, Simms said.
He estimated the price in this market for homes in the $200,000- to $300,000-range to be up “between $10,000 to $15,000 while houses in the $300,000- to $500,000-range would cost around $20,000 more.
What’s next?
High lumber costs were cited recently by a company seeking to amend its plans to build a 110-unit apartment complex at Cornerstone of Centerville, a 156-acre mixed-use development off Wilmington Pike near Interstate 675.
Treplus Communities sought to replace wood with vinyl as the dominant façade material for its plans for Dogwood Commons, a development for those 55 and older.
“We’re doing everything we can to start the project,” Treplus Development Director Steven Hicks told city officials in March.
The project was supposed to start last year and “it’s been a struggle to pin down all of the materials and labor necessary within the price ranges…that will make it work,” Hicks said.
The city rejected the change and Treplus said Friday it is moving forward with the development.
Hicks has said he hopes lumber costs drop, a move that is likely as COVID concerns decrease, Simms said.
“I think we’re already seeing lumber level off a little bit,” he said.
Pippenger agreed, but added “I don’t necessarily believe they’re going back to where they were pre-pandenmic.”
BY THE NUMBERS
•$24,000: Average cost increase of a new single-family home since April 2020.
•193: Percent of cost increase for lumber since April 2020.
•13: Top percentage increase projected for 2021 home improvement spending in 42 major metropolitan areas.
•$9: Estimated price of 8-foot 2X4 today.
•$3: Estimated price of 8-foot 2X4 a year ago.
SOURCES: National Home Builders Association, Fortune magazine, Joint Center for Housing Studies of Harvard University, Requarth Co.
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