Sticker Shock: Sky-high lumber prices hit local construction
From decks to sheds to houses, construction is going to be more expensive for the foreseeable future.
It’s “a perfect storm” of factors that have caused lumber prices to skyrocket over the course of 2020, says Kingsley Lumber CEO Mike Tucker.
“We have seen a significant spike in costs, starting in about May,” Tucker said. “Lumber prices escalated rapidly. In some commodities, it was an over 200% increase from May until recently.”
Like many businesses, lumber mills were affected by COVID-19 shutdowns, with most not producing any product for several weeks or months at a time.
When they were able to come back online, Tucker says most of them slashed their sales projections for 2020, assuming there would be “significantly reduced demand” due to huge spikes in nationwide unemployment and other signs of a potentially devastating economic recession.
“Their forecasts were to produce less product, because just like everything else, lumber is a commodity that can spoil,” Tucker said.
What lumber prognosticators did not foresee is the vast amount of homeowners sitting at home with spare time and lots of imagination.
“Everybody in America was home for weeks at a time not doing anything. They were all sitting at home thinking, ‘I’d love to have a deck.’ ‘I’d love to have a pergola.’ ‘I’d love to have an addition.’ ‘I’d love to redo this,'” Tucker said.
Consumer demand for lumber exploded, causing a shortage.
“Lumber mills produce certain amounts of product, and if there’s enhanced demand, they can’t just turn the valve back on and produce more product immediately,” Tucker said.
Now, Tucker says the mills and producers are scrambling to catch up with 2020’s huge lumber demand. Part of the challenge is that DIY enthusiasts are not the only segment of the market that has proved more robust than expected.
Demand for new home construction is also outpacing what lumber mill projections anticipated, in part because a cross-industry pivot to remote work has cut the shackles many people had tying them to big metropolitan epicenters.
“There’s been this nationwide trend of people moving from urban areas into more suburban areas, which has really fueled new construction of single-family housing,” Tucker said. “If suddenly everyone and their brother is trying to move out of, let’s just say San Francisco, and they’re moving to the suburbs, there’s only so many houses for sale. There’s not enough houses on the market, so they have to build more.”
Northern Michigan is not necessarily experiencing a boom in new home construction. According to Bob O’Hara, executive officer for the Home Builders Association Grand Traverse Area, 2020 numbers have paced 20-25% behind 2019’s for new home starts in Grand Traverse and Leelanau counties.
Still, demand has indeed been higher than anticipated. Tucker says that local general contractors have been buying product from Kingsley Lumber consistently, even with prices at unprecedented highs.
Similarly, Jake Makowski, a partner for local home building contractor Cornerstone Homes TC, indicates that the company has had no shortage of business this year – and is already “pretty much booked out” with building projects for 2021.
“Demand for homes – and tolerance for the price of the home – has outpaced the cost,” Makowski said.
Local construction is feeling the effects of the low-supply, high-demand lumber market. The good news is that prices seem to be stabilizing. According to October data from the Associated General Contractors of America, lumber and plywood costs are up 45.3% compared to the same time last year, but are down 27.3% since July.
Those percentages translate to higher costs than contractors were seeing before COVID-19, but the numbers are less outrageous than they might have looked in the late spring or early summer.
Makowski said he put out a bid on a lumber package pre-COVID, then for various reasons put the job on pause.
“When we came back to it a few months later … we re-bid that lumber package, and on a 1,300-square-foot house, the difference in price for just the lumber was $10,000,” he said.
Makowski said that if the project had been rebid just a month or two ago, the price differential would have been even bigger.
“We’ve been telling customers to expect a difference of about $10 per finished square foot, just in the lumber price,” he said.
Tucker cautions that the return to pre-COVID pricing will be more gradual than the meteoric springtime rise.
That “return to normal” has also faced road blocks in the form of natural disasters that have struck the United States in 2020. Western wildfires burned down several lumber mills and made highways difficult for truckers to traverse, affecting product availability and lead times.
Southern hurricanes contributed to the demand for plywood and oriented strand board, both used for boarding up windows and other forms of storm-proofing.
No matter what prices do, Tucker says he expects demand will remain sky-high. With a wide-scale exodus from urban areas and historically low mortgage interest rates, desirable places to live (like Traverse City) will probably continue to see home buying and building booms.
That kind of market activity will in turn keep local lumber suppliers and builders busy – even if customers have to get used to paying a fair amount of extra money.
Then again, Makowski says that many of the buyers who are building new homes in northern Michigan right now are already accustomed to paying more – because they are moving in from downstate or urban areas like Chicago.
“Definitely, people from in and around Chicago have been a lot of the customers for our homes lately; they’re used to different home pricing than we have in northern Michigan,” he said. “To people locally here, a change in price of $10,000 on a relatively small house is a bit of a sticker shock.
“But if you’re from the Chicago area, you can still get a house for under $250 a square foot brand new, and to them, that looks really affordable.”