Construction: Lumber prices down, optimism up

REGION – Just in time for the summer building season, the mood exchanged over the sales counter at Northern Lumber in Suttons Bay is a little brighter these days than owner Ed Beuerle says he has felt in months. Prices are low enough, he said, to finally spark some building activity.

"I do have optimism for the summer and I think it's turning around. I say that based not on any specific numbers, but I'm going just on the activity we've seen at the store."

The specific numbers have not been good for lumber retailers like Beuerle. Prices crashed to a historic low in March of this year, U.S. sawmills produced more than 17 percent fewer board feet in 2008 over 2007 levels, and imports of lumber fell more than thirty percent in the same time period according to the Chicago Mercantile, a futures exchange that monitors lumber sales. Since the end of the first quarter however, both the Housing Market Index and the National Association of Home Builders (NAHB) are projecting improvement.

"It's still quite early in the recovery game, but it appears that the supply-demand balance has stabilized and is beginning to improve," said the NAHB in its weekly Eye on the Economy forecast dated May 6. "NAHB's surveys of builders suggest that the beginnings of recovery in housing demand are underway."

Lumber retailers like Beuerle not only have to contend with job loss but also the glut of homes on the market. With existing homes priced low, buyers who might once have hired a builder to construct a new home now shop the foreclosed homes listings and look at those with vastly reduced prices. Scott Williams of Brown Lumber said that this may not be the case for long as inventory is sold off.

For some though, building a new home instead of buying an existing home has become a luxury. Rick Paid, owner of Rare Earth Hardwoods in Traverse City, caters to builders who work for those who can still afford luxury, though his business has not escaped the downturn.

"People are sitting on inventory," said Paid. "We cater to the wealthy, and we've been steady, but the market is the worst I've seen in 25 years. Still, there's a lot of talk out there that things are going to pick up. I've heard a lot more of that recently."

At Honor Building Supply, owner Tom Hopkins has worked diligently over the past year to manage his inventory effectively so that lumber doesn't sit, but also that he can fill his orders.

"I do most of the lumber buying and we've tried to keep it pretty skinny. I have heard talk that building is going to pick up. I haven't seen new houses being built, but there are jobs for garages, decks, and remodels. Builders coming in seem to be a little more optimistic but we'll see. The lower prices have helped some."

Brown Lumber's Williams said that since lumber usually makes up only 12 to 15 percent of a home's cost, lower lumber prices might spur building only when buyers are sitting on the fence. Still, he predicted an upswing by the end of the summer and into the fall.

All the men recalled a few years during the 1980s when the building industry in northern Michigan and across the country stalled but did eventually recover. They said they're optimistic that will be the case with this economic climate as well. Part of the problem, said Hopkins, is psychological.

"We just need a feeling of overall confidence, more than anything."

Williams said things like available credit, job security, home equity levels and mortgage rates all contribute to that confidence.

Beuerle agreed. "Sure, an optimistic mood is a hard thing to measure, but it can go a long way toward improving things that can be measured, like sales. And I think those will be better this summer than last." BN