For 20 years, the National Association of Home Builders tracked the availability of construction materials in the United States.
“Shortages of materials are now more prevalent than at any time since…the 1990s, with more than 90% of builders reporting shortages of appliances, structural lumber and [oriented strand board]”, writes Paul Emrath, senior economist for NAHB, on June 2.
And shortages mean price increases.
Since April 2020, the cost of lumber has increased 180%, according to the NAHB, and that has added $36,000 to the average price of a new single-family home.
“The rise in lumber prices is largely due to insufficient domestic production and extremely severe reductions in activity at sawmills that lasted into the 2020 construction season,” says NAHB.
“It’s through the roof,” said Richard Ryder, building trades technology specialist at Southwest Technology at Benington. “A year ago we were paying $30 for a sheet of plywood and now it’s over $75. I don’t know how people can afford to build with the price of lumber right now. And it’s not just wood, it’s everything to do with construction.
On June 10, the price for random length lumber was $1,122 per thousand feet.
While the futures market expects this to fall to $781 by July 2022, this is still more than double the price it was, $330, in May 2020.
In June 2020, the price started to increase, reaching $800 in August 2020, then fluctuating between $500 and $850 until March 2021. And then in April, the construction season started. The price reached $1,212 per thousand feet and in mid-May exploded to $1,495, with Canadian softwood lumber reaching over $1,650.
“Many owners were stuck at home, unable to go on vacation,” Bill Conerly wrote for Forbes. “With time and money, they headed to the local building supply dealer to get the materials needed to build decks, cabanas, sheds and even extra rooms.”
Then, in the fall of 2020, single-family housing starts increased significantly. In December, they reached levels not seen since 2006, under the effect of lower mortgage interest rates and increased demand for housing.
Sales of new single-family homes in April 2021 were at a seasonally adjusted annual rate of 863,000, according to estimates jointly released by the US Census Bureau and the Department of Housing and Urban Development, a 48% increase from the previous April. at 582,000.
For someone who just picked up a 2x4x10, increased demand and limited supply means that piece of wood will set you back $12 or more at the local hardware store.
“Our construction estimates and bids are 20 to 35 percent over budget,” said Bob Stevens, of Stevens and Associates, an engineering firm in Brattleboro. “Most people are expecting this to be a peak leveling off at a 10-15% increase by late fall. In the meantime, it’s hard to get new projects out there.”
SUPPLY AND DEMAND
In addition to high prices, said Josh Druke, vice president of WW construction supply to Newfane, “It’s really hard to get things.”
“Pressure-treated wood took two or three days,” he said. “Now it can take up to four weeks.”
“It has the characteristics of a classic supply and demand situation,” said David Carle, spokesman for U.S. Senator Patrick Leahy, D-Vt. “Most lumber processors cut production when the pandemic began, anticipating a drop in demand – a drop that never happened and which instead became an unexpected housing and construction boom. the renovation. They ran out of stock quickly and it takes a long time to ramp up production. »
“Wood products companies would like to increase capacity, but a new plant takes about two years to build,” wrote Conerly, who said production had moved to the southern United States from Canada due of a pine beetle infestation.
And labor shortages contribute to product scarcity, not just in rural areas where sawmills are located, Conerly wrote, but also among truckers across the country. And remember when all those petrochemical plants shut down in Texas last winter when the grid collapsed? This has led to a shortage of glue used in plywood and OSB, Conerly noted.
“It’s awful,” said John Allen, who was a general contractor in Brattleboro for 35 years.
Before the recent price spike, Allen said he could buy a premium 2x4x10 for around $3.
“Now they’re $13,” he said.
Despite the increase, he said, he has to turn down jobs.
“I can’t understand,” he said. “I receive two or three calls a day from someone who wants to build a terrace or redo a bathroom. It makes absolutely no sense because the wood prices are so ridiculous.
Scott Mathes, of Mathes Hulme Builders in Brattleboro, said he also had a lot of work.
“We haven’t had anyone put off a project because they couldn’t afford it,” he said.
But price fluctuations and supply chain disruptions prevent him from predicting when he might get to a job and what the real price will be.
“In the past it took maybe two weeks of delay, but now it’s eight to 16 weeks,” Mathes said. “It makes planning and setting customer expectations very difficult.”
That can be difficult for some contractors who signed estimates before prices rose, he said.
“If you have a contract with a fixed price and the materials change as much as they did, you eat that price change,” Mathes said. “If it’s 1 or 2%, that’s okay, but in many cases the difference is 10 to 25%. This means that some people in this industry suffer losses. Hope they don’t go bankrupt.
Companies like Unity houses at Walpole have had to rewrite their contract templates, said Andrew Dey, chief operating officer, to ensure they are prepared for such fluctuating material costs.
“Some of the projects we’re buying materials for right now are for contracts that were signed six or nine months ago with certain assumptions about the cost of the materials,” Dey said. “Right now, we are eating the losses. It’s not serious, but it hurts. »
Unity Homes manufactures the components for energy-efficient homes at its plant in Keene, NH, and even with the price increases, demand is high, Dey said.
“We’ve had more work than we’ve ever seen before,” he said.
And while Unity can write in a materials clause in a contract, finding enough people to meet demand is a big deal.
“We were already struggling to find enough people to do the job before the pandemic,” Dey said. “The capacity of our Keene plant is 150 to 200 houses per year. We’re not even close to it yet.
Druke said he’s also had trouble finding employees, and it’s not just because of the pandemic or rising unemployment benefits.
“We had a job problem in Vermont before the pandemic,” he said.
Trevor Allard is Vice President of Allard Wood in Brattleboro, which primarily produces hardwood products that are shipped around the world.
Allard has around 50 employees, most of whom are experienced and have been with the company for many years.
“But entry-level jobs are hard to fill,” he said.
When the pandemic first hit, Allard said, production actually resumed at the sawmill.
“We didn’t know if we should close,” he said. “We had all our winter wood piled up and worked a few extra hours to knock down our log pile because the logs get stained from the heat.”
But that wasn’t the case at other sawmills in North America, said Joe Miles, owner of RK Miles with eight locations in Vermont and two in Massachusetts.
“When all of this started, the industry was caught off guard,” he said. “Factories have cut production and the next thing you know everyone wants to buy, buy, buy. There are companies that are making a lot of money making these predictions and they have been completely wrong.
And even though demand has skyrocketed, some factories, like the one in Maine where he gets some of his products, have to close for scheduled maintenance.
“Which puts more pressure on pricing,” Miles said.
Not knowing when they’ll get the product means contractors who depend on them are often stretched thin, trying to plan projects and provide reliable quotes to their clients, Miles said.
Mills in the southern United States are trying to keep up with demand, Miles said, but they produce yellow pine, which is suitable for some applications but not in high demand in the northeast.
“It’s hard wood to work with,” he says. “If I tried to sell yellow pine for framing, it wouldn’t be welcome here.”
Allard said the “perfect storm” of factors that drove prices higher can be traced back to the 2007 subprime mortgage crisis.
“We haven’t returned to the production levels we had in 2006 and 2007 when a lot of people went out of business,” he said.
He also noted that there is not a huge margin in lumber.
“Producing 2x4s is really tight,” he said. “It’s like milking cows, where there are small margins. Dairy farmers have to milk whether they make money or not. Large lumber production is the same way. Some years they lose money. Working in the commodity market, that’s how it works.
It’s not just hardware stores and contractors feeling the bite, said Gail Grycel, who just retired from her custom cabinetry business but still teaches woodworking at school. Hatch Space, a fabrication space, workshop and training center for carpenters in Brattleboro.
“This is where the prices become prohibitive for those who want to learn,” she said. “They fall victim to material project costs that seem way too high for a small project that they might not be perfect as they learn. Even something small and simple in pine is a financial burden on top of the cost of a course.
Like so many people, Grycel also has a home project, tiling the floor of his apartment.
“I finally got the tile after three months,” she said. “That’s the other challenge for entrepreneurs. How do you stick to some sort of schedule, especially if you have to coordinate with other entrepreneurs? »
Miles thinks prices will eventually come down, but by how much? He does not know.
“We’ll have to wait and see if it’s just a dip to a slightly lower level and stays that way or if prices drop through the base,” he said.