Lumber Prices Ramp Up

Chicago, IL, Apr. 9--The recent spike in lumber prices is part of a broader pattern of increases for a building material essential to residential construction. But the hikes have yet to put much of a crimp in either homebuilding or remodeling. According to the publication Random Lengths, the price of 1,000 board feet of framing lumber hit $420 in the week ending April 9, the first time the price has been over $400 since June 2001. The price has risen sharply since the first of the year when it was at $334. Lumber prices can be volatile. But the overall level of lumber prices has been rising for about 20 years, the National Association of Home Builders says. Prices averaged $200 per 1,000 board feet during the 1980s while in the 1990s prices averaged over $300. The builder trade group blames the increases primarily on environmental restrictions on timber harvesting in the forests of the Pacific Northwest. There have also been ongoing issues with tariffs on Canadian lumber imports. That affected the pricing of lumber producers Weyerhaeuser, Georgia-Pacific, International Paper, Louisiana-Pacific, and Boise Cascade, among others. Not coincidentally as prices have risen, housing demand has jumped in the last two decades, as well. There were just over one million housing starts in 1983 and just over 1.1 million starts in 1993. But starts have been growing this decade: 1.23 million in 2000; 1.27 million in 2001; and 1.36 million in 2002. Last year, about 1.85 million new residential units were built. Remodeling activity in the U.S. also has been on a tear. Homeowner spending on remodeling hit an annual pace of $130.4 billion at the end of last year, up from $104.6 billion at the end of 2000. Much of that remodeling has been on the upper end, and much of that has involved major additions and alterations that can use significant amounts of lumber. The cost of lumber and wood products accounts for about one-third of the cost of materials used to build a home. A typical 2,000 square-foot-home uses nearly 16,000 board feet of lumber and 6,000 square feet of structural panels, such as plywood. At $400 per 1,000 board feet, the lumber package for a 2,000-square-foot-home costs nearly $10,000. That's about $2,500 more than when lumber is $300 per 1,000 board feet. But the difference is not that much as a total percentage of new-home prices. The median price of a new U.S. home was $193,400 in 2003, up from $175,200 in 2001. One place where lumber prices may be causing consternation is the local building-supply store. That's because passing cost increases along to big customers like homebuilders has gotten more difficult. Although it didn't specifically examine the lumber-price question, a new study from the Joint Center for Housing Studies at Harvard University finds that the distribution channels for residential building products, including lumber, have been undergoing immense change of late. Large homebuilding companies, which have been taking an increasing share of the market in most major U.S. cities, are now driving consolidation in the professional segment of building-product sales. And they are exacting price and other concessions, the study found. Building-products retailers were able to boost margins on products sold to homeowners by 1.6%, to 24.2%, from 1997 to 2002. But the margin increase on sales to homebuilders was just half that at 0.8%, to 16.5%. Sales of residential building supplies and related products at building material and supplies dealers totaled $265 billion in 2002, according to U.S. Census Bureau retail sales figures. That's double what it was ten years ago. These figures include not only lumber, building materials and millwork but also hardware, electrical and plumbing products, paints and sundries, lawn and garden supplies, and other product lines. The study notes that while consolidation among retailers serving the DIY crowd and smaller remodeling contractors began as much as 20 years ago, consolidation among professional dealers is more recent and "is just recently gathering momentum."